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Department of Economics, Stockholm University Research Papers in Economics, Department of Economics, Stockholm University

No 2005:4:
Tax Effects of Unemployment and the Choice of Educational Type

Annette Alstadsæter (), 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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