Dynamic Optimal Taxation with Human Capital Accumulation

Abstract

My habilitation thesis consists of five papers on the optimal tax systems in dynamic economies, in an environment where individuals can change their marketable skills by investing in their human capital. It is well known that individual’s skills are not exogenously given, say at the time of birth, but are dependent on individual’s past behaviour like the choice of schooling or on the job training. It is less known what are the implications for the optimal policy design. This is the goal of the papers in this habilitation thesis. More specif- ically, the goal is to provide answers to questions like i) what is the optimal level of income tax rates in the presence of human capital, ii) should income tax rates be increasing or decreasing with age, or iii) what is the role of school- ing subsidies in the optimal policy design. Since human capital formation is inherently dynamic, the answers cannot be obtained from static models, and one needs a dynamic framework to answer them.