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RESEARCH PAPER
Taxes and Externalities in the Nelson-Phelps Model with Heterogenity
1
Kolegium Analiz Ekonomicznych, Szkoła Główna Handlowa w Warszawie, Polska
Submission date: 2019-04-16
Final revision date: 2019-12-05
Acceptance date: 2020-01-15
Publication date: 2020-03-31
Corresponding author
GNPJE 2020;301(1):75-96
KEYWORDS
JEL CLASSIFICATION CODES
ABSTRACT
This paper aims to answer the question of whether it is economically profitable for net taxpayers to introduce public education financed by consumption or income tax in a situation where it is impossible to finance public education with a flat-rate tax. This question was answered using a modified Nelson-Phelps model including both private and public investments in human capital. The results obtained indicate that such a move may be profitable, especially in the case of developing countries with insignificant differences in property. It was also found that positive income effects are greater in the case of financing education with consumption tax, and that in developed countries such effects can only occur with this type of tax. On the other hand, developing countries may find it more socially profitable to introduce education financed by income tax due to the greater tax base and a stronger positive effect on human capital.
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