Tax
Reform and Human Capital Accumulation: Evidence from an
Empirical General Equilibrium Model of Skill Formation
Christopher Taber
Abstract
This paper adapts the heterogeneous agent dynamic
general equilibrium model of labor earnings developed by Heckman,
Lochner, and Taber (1998a) to estimate the effect of tax reform
on human capital accumulation. The model allows for both schooling
and on-the-job training. I estimate it on micro data accounting
for changes in the wage structure and changes in the tax system
over time. The estimates are then used to examine two effects of
the tax system: (1) the extent to which the progressivity of the
tax system distorts human capital, and (2) the extent to which taxation
of physical capital favors human capital investment. I find that
the long run effects of both distortions on both types of investment
are small. There is a larger short run effect on schooling, but
it is short lived.
Christopher Taber, Department
of Economics, Northwestern University
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