Working Paper Series, Department of Economics, Copenhagen Business School
Annette Alstadsæter, Anne-Sofie Kolm and Birthe Larsen
Money or Joy
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 tax induces too many workers with
high innate ability to choose an educational type associated with high
consumption value and low effort. 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; (follow links to similar papers)
JEL-Codes: H21; H24; J64; J68; (follow links to similar papers)
25 pages, November 28, 2005
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