[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwphe/0502002.html
   My bibliography  Save this paper

Reforming the Taxation of Human Capital: A Modest Proposal for Promoting Economic Growth

Author

Listed:
  • Paul A. David

    (Stanford University & University of Oxford)

Abstract
A new scheme of personal income tax reform would eliminate the inefficiencies arising from differences in the tax treatment of investments in intangible human capital and other types of capital formation. It also would offset the exacerbation of those distortions caused by progressive taxation, without requiring abandonment of the latter principle. The proposed incremental reform of the personal income tax regime would permit full deductibility of private costs of education and training, but defer the exercise of the deduction credits. The novel instrument for achieving these objectives is an individually held, non- transferable asset: an untaxed, interest-bearing educational (expense) deduction account -- christened the “UIBEDA,” and pronounced: “we- bedda.” Under plausibly realistic assumptions about the time profile of education-associated earnings differentials, and the progressiveness of tax rate schedules, it is feasible for the Treasury adopting such a scheme to satisfy an intertemporal balanced budget constraint, while in effect acting as a financial intermediary in the market for human capital investments. The UIBEDA scheme facilitates shifting from direct educational subsidies to the use of publicly subsidized student loans, and also can be readily extended to promote selective immigration of workers who have incurred indebtedness for human capital investments abroad.

Suggested Citation

  • Paul A. David, 2005. "Reforming the Taxation of Human Capital: A Modest Proposal for Promoting Economic Growth," HEW 0502002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwphe:0502002
    Note: Type of Document - pdf; pages: 29
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/hew/papers/0502/0502002.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 262-333, April.
    2. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1997. "A brain gain with a brain drain," Economics Letters, Elsevier, vol. 55(2), pages 227-234, August.
    3. Andrea Bassanini & Stefano Scarpetta, 2001. "Does Human Capital Matter for Growth in OECD Countries?: Evidence from Pooled Mean-Group Estimates," OECD Economics Department Working Papers 282, OECD Publishing.
    4. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, vol. 112(482), pages 705-734, October.
    5. Bassanini, Andrea & Scarpetta, Stefano, 2002. "Does human capital matter for growth in OECD countries? A pooled mean-group approach," Economics Letters, Elsevier, vol. 74(3), pages 399-405, February.
    6. Judd, Kenneth L, 1998. "Taxes, Uncertainty, and Human Capital," American Economic Review, American Economic Association, vol. 88(2), pages 289-292, May.
    7. Paul A David (with the assistance of John Gabriel Goddard Lopez), 2000. "Knowledge, Capabilities and Human Capital Formation in Economic Growth," Treasury Working Paper Series 01/13, New Zealand Treasury, revised 10 Apr 2001.
    8. James J. Heckman, 1976. "Estimates of a Human Capital Production Function Embedded in a Life-Cycle Model of Labor Supply," NBER Chapters, in: Household Production and Consumption, pages 225-264, National Bureau of Economic Research, Inc.
    9. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-715, September.
    10. James Davies & John Whalley, 1991. "Taxes and Capital Formation: How Important is Human Capital?," NBER Chapters, in: National Saving and Economic Performance, pages 163-200, National Bureau of Economic Research, Inc.
    11. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-350, April.
    12. Carneiro, Pedro & Heckman, James J., 2003. "Human Capital Policy," IZA Discussion Papers 821, Institute of Labor Economics (IZA).
    13. Steuerle, C Eugene, 1996. "How Should Government Allocate Subsidies for Human Capital?," American Economic Review, American Economic Association, vol. 86(2), pages 353-357, May.
    14. Dupor, Bill, et al, 1996. "Some Effects of Taxes on Schooling and Training," American Economic Review, American Economic Association, vol. 86(2), pages 340-346, May.
    15. Kaplow, Louis, 1996. "On the Divergence between "Ideal" and Conventional Income-Tax Treatment of Human Capital," American Economic Review, American Economic Association, vol. 86(2), pages 347-352, May.
    16. Stark, Oded & Wang, Yong, 2002. "Inducing human capital formation: migration as a substitute for subsidies," Journal of Public Economics, Elsevier, vol. 86(1), pages 29-46, October.
    17. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
    18. Andrea Bassanini & Stefano Scarpetta & Philip Hemmings, 2001. "Economic Growth: The Role of Policies and Institutions: Panel Data. Evidence from OECD Countries," OECD Economics Department Working Papers 283, OECD Publishing.
    19. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts," NBER Working Papers 6385, National Bureau of Economic Research, Inc.
    20. Stark, Oded & Wang, Yong, 2002. "Inducing human capital formation: migration as a substitute for subsidies," Journal of Public Economics, Elsevier, vol. 86(1), pages 29-46, October.
    21. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    22. Shoven, John B. & Bernheim, B. Douglas (ed.), 1991. "National Saving and Economic Performance," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226044040, September.
    23. B. Douglas Bernheim & John B. Shoven, 1991. "National Saving and Economic Performance," NBER Books, National Bureau of Economic Research, Inc, number bern91-2.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Oded Stark & Roman Zakharenko, 2012. "Differential Migration Prospects, Skill Formation, and Welfare," Review of International Economics, Wiley Blackwell, vol. 20(4), pages 657-673, September.
    2. Hoyt Bleakley & Aimee Chin, 2010. "Age at Arrival, English Proficiency, and Social Assimilation among US Immigrants," American Economic Journal: Applied Economics, American Economic Association, vol. 2(1), pages 165-192, January.
    3. James Alm & Janet Rogers, 2011. "Do State Fiscal Policies Affect State Economic Growth?," Public Finance Review, , vol. 39(4), pages 483-526, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paul A. David, "undated". "Reforming the Taxation of Human Capital: A Modest Proposal," Working Papers 01007, Stanford University, Department of Economics.
    2. Chaitali Sinha, 2014. "Human Capital and Public Policy," South Asian Journal of Macroeconomics and Public Finance, , vol. 3(1), pages 79-125, June.
    3. Theo Eicher & Stephen Turnovsky & Maria Carme Riera i Prunera, 2003. "Effects of differential taxation on factor accumulation and growth," Working Papers in Economics 98, Universitat de Barcelona. Espai de Recerca en Economia.
    4. Philip Trostel & Ian Walker, 2006. "Education and Work," Education Economics, Taylor & Francis Journals, vol. 14(4), pages 377-399.
    5. Lance Lochner & Alexander Monge-Naranjo, 2002. "Human Capital Formation with Endogenous Credit Constraints," NBER Working Papers 8815, National Bureau of Economic Research, Inc.
    6. Gianluca Violante & Giovanni Gallipoli & Costas Meghir, 2005. "Education Decisions, Equilibrium Policies and Wages Dispersion," 2005 Meeting Papers 522, Society for Economic Dynamics.
    7. Brent Kreider, 2008. "Optimal Wage Taxation When Human Capital And Employment Are Endogenous," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 660-675, October.
    8. James Heckman & Flavio Cunha, 2007. "The Technology of Skill Formation," American Economic Review, American Economic Association, vol. 97(2), pages 31-47, May.
    9. Cunha, Flavio & Heckman, James J. & Lochner, Lance, 2006. "Interpreting the Evidence on Life Cycle Skill Formation," Handbook of the Economics of Education, in: Erik Hanushek & F. Welch (ed.), Handbook of the Economics of Education, edition 1, volume 1, chapter 12, pages 697-812, Elsevier.
    10. Felicia Ionescu, 2009. "The Federal Student Loan Program: Quantitative Implications for College Enrollment and Default Rates," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 205-231, January.
    11. Beladi, Hamid & Sinha, Chaitali & Kar, Saibal, 2016. "To educate or not to educate: Impact of public policies in developing countries," Economic Modelling, Elsevier, vol. 56(C), pages 94-101.
    12. Young-Chul Kim & Young-Joon Kim & Glenn C. Loury, 2014. "Widening Gap in College Admission and Improving Equal Opportunity in South Korea," Global Economic Review, Taylor & Francis Journals, vol. 43(2), pages 110-130, June.
    13. Philippe Belley & Lance Lochner, 2007. "The Changing Role of Family Income and Ability in Determining Educational Achievement," Journal of Human Capital, University of Chicago Press, vol. 1(1), pages 37-89.
    14. Lance J. Lochner & Alexander Monge-Naranjo, 2011. "The Nature of Credit Constraints and Human Capital," American Economic Review, American Economic Association, vol. 101(6), pages 2487-2529, October.
    15. James Heckman, 2011. "Policies to foster human capital," Voprosy obrazovaniya / Educational Studies Moscow, National Research University Higher School of Economics, issue 3, pages 73-137.
    16. Arild Aakvik & Kjell G. Salvanes & Kjell Vaage, 2005. "Educational Attainment and Family Background," German Economic Review, Verein für Socialpolitik, vol. 6(3), pages 377-394, August.
    17. Brant Abbott & Giovanni Gallipoli & Costas Meghir & Giovanni L. Violante, 2019. "Education Policy and Intergenerational Transfers in Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 127(6), pages 2569-2624.
    18. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post--secondary Schooling," Economic Journal, Royal Economic Society, vol. 112(482), pages 705-734, October.
    19. John Bailey Jones & Fang Yang, 2016. "Skill-Biased Technical Change and the Cost of Higher Education," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 621-662.
    20. Heckman, James J. & Lochner, Lance J. & Todd, Petra E., 2006. "Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond," Handbook of the Economics of Education, in: Erik Hanushek & F. Welch (ed.), Handbook of the Economics of Education, edition 1, volume 1, chapter 7, pages 307-458, Elsevier.

    More about this item

    JEL classification:

    • I - Health, Education, and Welfare

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwphe:0502002. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.