Tuition fees and the dual income tax : the optimality of the nordic income tax system reconsidered

We examine the optimal tax and education policy in case of a dual income tax and a publicly provided education system with endogenous tuition fees. In a Nielsen and Sørensen (1997) type OLG framework, we show that tuition fees and progressive labor taxation are (largely) equivalent instruments, even when labor supply is endogenous. Hence, there exists a large variety of Second-best optimal tax and education systems including the Nordic one. Moreover, education subsidies and progressive taxation turn out to be Siamese Twins on pure efficiency grounds