This paper examines the effect of taxes on the individuals' choices of educational direction, and thus on the economy.s skill composition. A proportional labour tax induces too many workers with high innate ability to choose an educational type associated with high consumption value and low...

This paper develops a four sector equilibrium search and matching model with informal sector employment opportunities and educational choice. We show that underground activities reduce educational at- tainments if informal employment opportunities mainly are available to low educated workers....