Journal Article
Firm Training and Capital Taxation
In the setup of an overlapping generations model with firm training
I analyze the consequences of a tax on capital income. It turns out that a capital tax influences
training investments via two opposing effects. On the one hand, it
lowers the stock of physical capital and thereby the productivity of
training. On the other hand, the bargaining power of workers is
diminished because there are fewer firms active in the market. This
leads to a higher degree of wage-compression improving the
incentives to train. In principle either effect can dominate. If the
wage-compression effect dominates, it is possible that a tax on capital
income increases welfare, since underinvestment in training is more
severe than underinvestment in physical capital.