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Taxation under Learning by Doing

Makris, Miltiadis, Pavan, Alessandro (2021) Taxation under Learning by Doing. Journal of Political Economy, 129 (6). pp. 1878-1944. ISSN 0022-3808. (doi:10.1086/713745) (KAR id:85462)

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We study optimal income taxation when workers’ productivity is stochastic and evolves endogenously because of learning-by-doing. Learning-by-doing calls for higher wedges, and alters the relation between wedges and tax rates. In a calibrated model, we find that reforming the US tax code brings significant welfare gains and that a simple tax code invariant to past incomes is approximately optimal. We isolate the role of learning-by-doing by comparing the aforementioned tax code to its counterpart in an economy that is identical to the calibrated one except for the exogeneity of the productivity process. Ignoring learning-by-doing calls for fundamentally different proposals.

Item Type: Article
DOI/Identification number: 10.1086/713745
Subjects: H Social Sciences
Divisions: Divisions > Division of Human and Social Sciences > School of Economics
Depositing User: Miltos Makris
Date Deposited: 12 Jan 2021 11:20 UTC
Last Modified: 04 May 2022 23:00 UTC
Resource URI: (The current URI for this page, for reference purposes)
Makris, Miltiadis:
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