Firm Training and Capital Taxation

Authors

• Lechthaler
• W.

Publication Date

JEL Classification

Key Words

In the setup of an overlapping generations model with firm training

I analyze the consequences of a tax on capital income. It turns out that a capital tax influences

training investments via two opposing effects. On the one hand, it

lowers the stock of physical capital and thereby the productivity of

training. On the other hand, the bargaining power of workers is

diminished because there are fewer firms active in the market. This

leads to a higher degree of wage-compression improving the

incentives to train. In principle either effect can dominate. If the

wage-compression effect dominates, it is possible that a tax on capital

income increases welfare, since underinvestment in training is more

severe than underinvestment in physical capital.