SSE/EFI Working Paper Series in Economics and Finance
Taxation, Inequality and the Allocation of Talent
Abstract: This paper examines the implications of income
redistribution on human capital accumulation and income inequality,
presenting a model where human capital investment is indivisible and agents
differ in economic opportunity as well as intellectual ability. It is shown
that the impact of redistribution is ambiguous on the income distribution
as well as on human capital accumulation. In particular, while
redistributive policy is likely to be successful both in terms of
efficiency and equity in low-tax societies, it may be highly detrimental in
both respects if the rate of redistribution is already moderate or high.
Keywords: human capital; talent; efficiency; equity; redistributive taxation; (follow links to similar papers)
JEL-Codes: H31; J24; (follow links to similar papers)
25 pages, March 14, 2003, Revised April 16, 2003
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