Tax effects on unemployment and the choice of educational type
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Date
2005Metadata
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- Discussion Papers [1002]
Abstract
Abstract:
This paper examines the effect of taxes on the individuals' choices of educational direction, and thus
on the economy's skill composition. A proportional labour income tax induces too many workers with
high innate ability to choose an educational type with high consumption value and low effort costs.
This increases the skill mismatch and aggregate unemployment in the economy. The government
can correct for this distortion by use of differentiated tuition fees or tax rates.
Keywords: Unemployment, matching, education, optimal taxation, tuition fees