Money or Joy: The Choice of Educational Type

Annette Alstadsæter; Anne-Sofie Kolm; Birthe Larsen

Money or Joy: The Choice of Educational Type

Annette Alstadsæter
, Anne-Sofie Kolm
, Birthe Larsen

Department of Economics

Research output: Working paper › Research

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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 tax induces too many workers with high innate ability to choose an educational type associated with high consumption value and low effort. 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.JEL codes: J64, J68, H21, H24Keywords: Unemployment, matching, education, optimal taxation, tuition fees

Original language	English
Place of Publication	København
Number of pages	25
Publication status	Published - 2005

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

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Cite this

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AB - 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 tax induces too many workers with high innate ability to choose an educational type associated with high consumption value and low effort. 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.JEL codes: J64, J68, H21, H24Keywords: Unemployment, matching, education, optimal taxation, tuition fees

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