How do taxes affect human capital? The role of intergenerational mobility

This paper investigates how explicitly modeling the intergenerational trans mission of human capital modifies the effects of tax policies obtained from standard lifecycle models. The main finding is that the intergenerational persistence of human capital is not an important determinant of the steady- state and transitional effects of several commonly studied tax policies. Co nventional life-cycle models closely approximate the predictions generated by models with realistic intergenerational mobility properties. However, in tergenerational persistence can substantially magnify the effects of polici es that distort job training investment. (C) 2001 Academic Press.