SHOULD EDUCATION BE SUBSIDIZED

An efficiency argument for public subsidies to education is proposed i n this study. Subsidizing education is shown to be welfare improving b ecause it makes the tax system less distortionary. Income taxation cau ses a less than efficient amount of investment in human capital, and i nduces an inefficient mix of human capital investments. Taxation cause s too few goods, and relatively too much time, to be invested in human capital. Lowering the private cost of goods invested in human capital counteracts these tar distortions thus it can be efficient to subsidi ze education.