How tax policy can promote lifelong learning

adult-education-2706977_960_720In the face of demographic and technological change, people will have to work longer and are more likely to switch jobs, careers, or tasks within a given job. Faster depreciation of human capital increases the need for lifelong learning. Some governments have therefore tried to promote lifelong learning through financial support or information campaigns.

In a recent IZA Discussion Paper, researchers from the CPB Netherlands Bureau for Economic Policy Analysis assess the effectiveness of Dutch tax policy, which allows workers to deduct expenditures on post-initial work-related training and education from their pre-tax personal income. The authors, Wiljan van den Berge, Egbert Jongen and IZA Fellow Karen van der Wiel, examine how jumps in marginal tax rates affect the probability of fi ling lifelong learning expenditures and the amount of such expenditures for different subgroups.

High-income earners more likely to invest in lifelong learning

Their analysis finds that tax deductions are effective only for some groups: Among singles, those at a relatively low level of income (around 18,000 euros) do not take advantage of the tax incentives to invest in lifelong learning at all, while for those with a relatively high income (around 55,000 euros) the probability to invest in professional education increases by 10%. Among couples, primary earners are also more responsive to making use of the tax deductions. The researchers observe that secondary earners tend to shift their investment in lifelong learning to their better-earning partners.

From a policy perspective, the low responsiveness of low-income singles seems most problematic. The authors explain that many people with a lower income are uninformed about possible tax breaks or tend to underestimate the utility of investing in lifelong learning measures and making long-term career plans. Those with a lower educational background often dislike formal learning and are psychologically not inclined to attend a school again. Tax deductions should thus be accompanied by information campaigns specifically targeting those at the lower end of the income distribution.

Download the complete study (IZA DP No. 10885):

Read more about lifelong learning on IZA World of Labor:

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