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Nikolaj Malchow-Møller, Søren Bo Nielsen and Jan Rose Skaksen
''Taxes, tuition fees and education for pleasure''
The fact that education provides both a productive and a consumptive (non-productive) 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 labour 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 towards progressivity.
Keywords: consumption education intrinsic value optimal taxation tuition fees
JEL: H2 - Taxation, Subsidies, and Revenue: General
Manuscript Received : Mar 24 2008 Manuscript Accepted : Aug 08 2011

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