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Taxation and Skills

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This Tax Policy Study on Taxation and Skills examines how tax policy can encourage skills development in OECD countries. This study also assesses the returns to tertiary and adult education and examines how these returns are shared between governments and students. The study builds indicators that examine incentives for individuals and governments to invest in education. These indicators take into account the various financial costs of skills investments for individuals such as foregone after-tax earnings and tuition fees, as well as whether investments are financed with savings or with student loans. Costs borne by governments such as grants, scholarships, lost taxes, and skills tax expenditures are also accounted for. The indicators also incorporate the returns to skills investments for individuals and governments through higher after-tax wages and higher tax revenues respectively.

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Methodological approach to tax and skills statistics

This chapter outlines an approach to estimating the financial incentives for individuals and governments to invest in individuals’ skills, and the effect of the tax system on these incentives. Specifically, it outlines the key indicators developed to examine the impact of the tax system on skills. These indicators include Marginal Effective Tax Rates (METRs) and Average Effective Tax Rates (AETRs) on Human Capital Investment, as well as Marginal Returns to Costs Ratios (MRCRs) and Average Returns to Costs Ratios (ARCRs) of Government Investment in Human Capital. The chapter cites the data sources used to develop results for these indicators, and explains how the results presented in of the study should be interpreted.

English

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