Title

Taxation, Human Capital, and Uncertainty

Author(s)

Jonathan Eaton Jonathan Eaton (Princeton University )

Harvey S. Rosen Harvey Rosen (Princeton University )

Abstract

This paper analyzes the effect of wage and interest taxation on investment in human capital. It is shown that results derived under the assumption that human.capital is a riskless asset fail to obtain when the return on human capi- tal is uncertain. The interaction of the human capital investment decision with savings, consumption and labor-leisure choices are taken into account. An implication of the analysis is that, when the rate of return on human capi- tal is stochastic, efficient taxation requires positive taxation of wage income even when lump-sum taxation is feasible.

Creation Date

1979-01

Section URL ID

IRS

Paper Number

117

URL

https://dataspace.princeton.edu/bitstream/88435/dsp015m60qr90f/1/117.pdf

File Function

Jel

L68, L69

Keyword(s)

Suppress

false

Series

1