Tuesday, May 08, 2007

I read the most simple yet brilliant thing by Gary Becker and Kevin Murphy just now

From The Upside of Income Inequality (hat tip Greg Mankiw):
Higher rates of return on capital are a sign of greater productivity in the economy, and that inference is fully applica­ble to human capital as well as to physical capital.

For many, the solution to an increase in inequality is to make the tax structure more progressive—raise taxes on high-income households and reduce taxes on low-income households. While this may sound sensible, it is not. Would these same indi­viduals advocate a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education? We think not. Yet shifting the tax structure has exactly this effect.

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