Research Papers in Economics, Department of Economics, Stockholm University
Tax Effects of Unemployment and the Choice of Educational Type
(), Ann-Sofie Kolm
() and Birthe Larsen
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; (follow links to similar papers)
JEL-Codes: H21; H24; J64; J68; (follow links to similar papers)
25 pages, April 20, 2005
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