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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 skills statistics: Effective tax rates and returns to costs ratios

This chapter presents the main results for the indicators surrounding the financial incentives to invest in skills discussed in this tax policy study. The key indicators are the Breakeven Earnings Increment (BEI), the Marginal Effective Tax Rate on Skills (METR), the Average Effective Tax Rate on Skills (AETR), the Marginal Returns to Costs Ratio for Governments (MRCR), and the Average Returns to Costs Ratio for Governments (ARCR). The chapter presents results for four stylised education, scenarios: a 17-year-old student undertaking a four-year degree, a 27 year-old undertaking a one-year degree, a 32-year old undertaking a short course of job-related training, and a 50-year old undertaking a one-year degree. The chapter also examines the impact of the form of financing of education on indicator outcomes, as well as the way the results vary by gender.

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