Does the Tax System Encourage too much Education?
CESifo, Munich, 2001
CESifo Working Paper No. 612
![](https://cesifo.org/DocImg/cesifo_wp612.jpg?c=1689237211)
This paper provides an efficiency argument in favour of progressive labour income taxation. When the consumer faces a trade-off between investments in financial and human capital, a proportional comprehensive income tax tends to discriminate in favour of human capital investments. This effect is strengthened when education no longer is a pure investment, but also holds a direct consumption value. A comprehensive proportional income tax works as a tax subsidy on human capital investments, and it reduces the price of education as a consumption good. By introducing a progressive labour income tax, the efficiency distortion in the capital market may be partly neutralised.