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Title: Redistribution and Education Subsidies are Siamese Twins

Author(s): A Lans Bovenberg and Bas Jacobs

Publication Date: December 2001

Keyword(s): education subsidies, human capital and progressive taxation

Programme Area(s): Public Economics

Abstract: We develop a model of human capital formation with endogenous labour supply and heterogeneous agents to explore the optimal level of education subsidies along with the optimal progressive schedule of the labour income tax and optimal capital income taxes. Subsidies on education ensure efficiency in human capital accumulation, while taxes on skilled labour help to redistribute income towards the less able. We thus provide a rationale for the widely observed presence of education subsidies. The actually observed tax codes and level of education subsidies suggest that a large part of education subsidies can be justified on these grounds.

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Bibliographic Reference

Bovenberg, A and Jacobs, B. 2001. 'Redistribution and Education Subsidies are Siamese Twins'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3099