Wednesday, May 09, 2007

Subsidizing Dropping Out of High School?

Gary Becker and Kevin Murphy have an interesting article on income inequality. They go through various stats, discussing how returns to education is driving the increase in inequality. Then they bring up the political desire to create an increasing progressive tax code to reduce the inequality. They offer this as a rebuttal:

For many, the solution to an increase in inequality is to make the tax structure more progressive-raise taxes on high-income households and reduce taxes on low-income households. While this may sound sensible, it is not. Would these same individuals advocate a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education? We think not. Yet shifting the tax structure has exactly this effect.

HT Greg Mankiw

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