Taxes, Tuition Fees and Education for Pleasure

Nikolaj Malchow-Møller, Søren Bo Nielsen, Jan Rose Skaksen

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The fact that education provides both a productive and a consumptive (nonproductive) return has important and, in some cases, dramatic implications for optimal taxes and tuition fees. Using a simple model, we show that when the consumption share in education is endogenous and tuition fees are unconstrained, the optimal tax/fee system involves regressive income taxes and high tuition fees. A progressive labor income tax system may, on the other hand, be a second-best response to politically constrained, low tuition fees. Finally, the existence of individuals with different abilities will also move the optimal income tax system toward progressivity.
Original languageEnglish
JournalJournal of Public Economic Theory
Issue number2
Pages (from-to)189-215
Number of pages27
Publication statusPublished - Apr 2011

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