Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 522: Taxation, Inequality and the Allocation of Talent

Malin Bergman ()
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Malin Bergman: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

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

JEL-codes: H31; J24

25 pages, First version: March 14, 2003. Revised: April 16, 2003. Earlier revisions: April 11, 2003, April 11, 2003.

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