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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu This paper studies optimal taxation schemes for education in a search-matching model where the labor market is divided between a high-skill and a low-skill sector. Two public policy targets -maximizing the global employment level and optimizing the social surplusare studied according to three different public taxation strategies. We calibrate our model using evidence from fourteen European countries, and compare our results with the target from the Europe 2020 Agenda for achievement in higher education. We show that, with current labor market characteristics, the target set by governments seems compatible with the social surplus maximization objective in some countries, while being too high for other countries. For all countries, maximizing employment would imply higher educational spending than that required for the social surplus to reach its maximum. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SJEL Classification: H21, H52, J21, J64

This paper provides an analysis of the social consequences of people seeking to get ahead of the Smiths. All individuals attempt to reach a higher rank than the Smiths, including the Smiths themselves. This attitude gives rise to an equilibrium in which all individuals have equal utilities but unequal (gross) incomes. Due to a rat‐race effect, individuals devote too much energy to climbing the social scale. However, laissez‐faire equilibrium is an equal‐utility constrained social optimum. Conversely, a utilitarian social planner would not choose utility equality. Unexpectedly, this social ambition theory fairly well accounts for empirical intermediate wage inequality.

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