An efficiency argument for public subsidies to education is proposed in this study.
Subsidizing education is shown to be welfare improving because it makes the tax
system less distortionary. Income taxation causes a less than efficient amount of
investment in human capital, and induces an inefficient mix of human capital
investments. Taxation causes too few goods, and relatively too much time, to be
invested in human capital. Lowering the private cost ofgoods invested in human capital
counteracts these tax distortions, thus it can be efficient to subsidize education.
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