Poverty, human capital, life-cycle and the tax and transfer bases : the role of education for development and international competition

  • The paper is based on an individual life-cycle model, which describes the purely economic components of human capital. The present value of human capital is determined by all future income flows, which at the same time constitute the individual as well as the total tax base of a nation. Therefore, the income of the productive population determines the total tax revenue, which is spent for public goods (including education) and transfers (for poverty reduction). The efficient design of the education system (by private and public education investments) determines the quality of the human capital stock as well as the future gross income flows. The costs of public goods and the transfer expenditures have to be financed from the total tax revenue, which also affects the individual tax burden via the specific tax bases and tax rates. Especially the redistribution of income is connected with serious disincentives, influencing the preferences for work and leisure as well as for consumption and saving. An efficient tax and transfer system beinThe paper is based on an individual life-cycle model, which describes the purely economic components of human capital. The present value of human capital is determined by all future income flows, which at the same time constitute the individual as well as the total tax base of a nation. Therefore, the income of the productive population determines the total tax revenue, which is spent for public goods (including education) and transfers (for poverty reduction). The efficient design of the education system (by private and public education investments) determines the quality of the human capital stock as well as the future gross income flows. The costs of public goods and the transfer expenditures have to be financed from the total tax revenue, which also affects the individual tax burden via the specific tax bases and tax rates. Especially the redistribution of income is connected with serious disincentives, influencing the preferences for work and leisure as well as for consumption and saving. An efficient tax and transfer system being accompanied by an education system financed in public private partnership, which treats equally labor and capital income, sets positive incentives for the formation of human, financial, and real capital. An important prerequisite for a sustainable growth process is the efficient design of the social security system, being based on the family as well as a collective risk equalization scheme. If that system is diminishing absolute poverty in an appropriate time period by transfers and vocational education measures for the grown-up as well as high quality primary, secondary and tertiary education programs for the children, the transfer expenditure would decrease and the tax bases (income and consumption) increase, lowering the burden on the productive population. For the first time, this micro model presented in this paper pools all the relevant variables for development within a simple life-cycle model, which can also be used for a powerful analysis of the current failures in existing tax and transfer schemes and fruitful empirical investigations. Hence, an efficient tax and transfer scheme strongly contributes to an improved national position in the global competition.show moreshow less

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Metadaten
Author:Hans-Georg Petersen
URN:urn:nbn:de:kobv:517-opus-53968
Series (Serial Number):Finanzwissenschaftliche Diskussionsbeiträge (Bd. 63)
Document Type:Book
Language:German
Date of Publication (online):2011/09/28
Year of Completion:2011
Publishing Institution:Universität Potsdam
Release Date:2011/09/28
Tag:education; human capital; life-cycle analysis; lifetime income; poverty; redistribution; risk equalization; taxation; transfers
Organizational units:Wirtschafts- und Sozialwissenschaftliche Fakultät / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL Classification:D Microeconomics / D1 Household Behavior and Family Economics
D Microeconomics / D3 Distribution / D31 Personal Income, Wealth, and Their Distributions
D Microeconomics / D9 Intertemporal Choice and Growth / D91 Intertemporal Consumer Choice; Life Cycle Models and Saving
H Public Economics / H2 Taxation, Subsidies, and Revenue / H21 Efficiency; Optimal Taxation
H Public Economics / H3 Fiscal Policies and Behavior of Economic Agents / H31 Household
H Public Economics / H5 National Government Expenditures and Related Policies / H55 Social Security and Public Pensions
I Health, Education, and Welfare / I2 Education and Research Insititutions / I21 Analysis of Education
I Health, Education, and Welfare / I2 Education and Research Insititutions / I22 Educational Finance
I Health, Education, and Welfare / I3 Welfare and Poverty / I32 Measurement and Analysis of Poverty
J Labor and Demographic Economics / J1 Demographic Economics / J17 Value of Life; Forgone Income
J Labor and Demographic Economics / J2 Demand and Supply of Labor / J24 Human Capital; Skills; Occupational Choice; Labor Productivity
O Economic Development, Technological Change, and Growth / O1 Economic Development / O15 Human Resources; Human Development; Income Distribution; Migration
P Economic Systems / P4 Other Economic Systems / P46 Consumer Economics; Welfare and Poverty
Licence (German):License LogoKeine Nutzungslizenz vergeben - es gilt das deutsche Urheberrecht
Notes extern:
Paper presented at the International Conference on Economic Asymmetries and Globalisation: Challenges and Opportunities December 16 - 18, 2010 Indian Institute of Management, Lucknow Noida Campus, Delhi/India
For a print copy please contact Mrs. Gericke (dgericke@uni-potsdam.de). Originally published at http://lsfiwi.wiso.uni-potsdam.de/publikationen/diskuss/index-diskuss.html