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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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Tax and non-tax financial incentives to support skills investments

This chapter analyses the costs and impact of specific tax expenditures aimed at encouraging skills investment. The chapter discusses tax expenditures targeted at tertiary education and lifelong earnings separately. The impacts on skills development are discussed, as well as the equity implications of the tax expenditures. Tax and non-tax approaches to encouraging skills investment are compared and analysed. The chapter concludes with a discussion of optimal policy mixes from a skills perspective.

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