Tax Incentives and Economic Growth

By Barry P. Bosworth | Go to book overview

There has been almost no empirical work on the effect of taxes on investment in education. The proportion of individuals in the age cohort of eighteen to twenty-four attending college did not change during the 1970s. During that period programs such as student loans were sharply expanded. That would suggest that such decisions are less sensitive to cost than is commonly assumed. On the other hand, tuition costs also rose substantially. It may be that the net costs to the individual did not significantly change over the period.74

A consideration of the role of education in economic growth does suggest the arbitrary nature of the assumption of distinctions between consumption and investment and between labor and capital. The definition of saving that is often used in discussions of capital formation or in proposals for a shift to a consumption-based tax treats education as consumption and ignores the investment element.


Summary

Some readers, noting the high levels of unemployment that have plagued the U.S. economy for years, may regard as absurd an emphasis on economic policy measures to increase labor supply. The economy seems unable to find jobs for those who have already indicated a desire to work. And certainly for years to come it will be difficult to get the unemployed back to work.

It is important, however, to distinguish between the supply of labor and its utilization as reflected in the unemployment rate. In recent years the labor force has been underutilized, as economic policy has emphasized the restraint of demand and employment as a means of reducing inflation. Increased unemployment is one cost of such an effort. Indeed, unemployment must rise if increased competition for jobs is to moderate the wage demands of the employed. But it is the balance between the supply and demand for labor, and not the overall size of the labor force, that is relevant to the concern about inflation. That concern, justified or not, should not inhibit efforts to increase the demand for labor at a rate in keeping with the growth in supply.

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74
For evidence of the importance of cost in decisions to attend college, see John Bishop , "The Effects of Public Policies on the Demand for Higher Education," Journal of Human Resources, vol. 12 (Summer 1977), pp. 285-307; and the citations in that study.

-172-

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Tax Incentives and Economic Growth
Table of contents

Table of contents

  • Title Page iii
  • Foreword vii
  • Contents ix
  • Chapter One - the Supply-Side Debate 1
  • Chapter Two - the Role of Capital Formation 23
  • Summary 55
  • Chapter Three - Saving and Private Capital Formation 59
  • Summary 94
  • Chapter Four - Investment Demand and Its Relation to Saving 97
  • Summary 127
  • Chapter Five - Labor Supply 130
  • Summary 172
  • Chapter Six - Implications for Economic Policy 177
  • Index 205
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