Education cuts weaken future tax revenue

⚠ Disputed

Confidence: Speculative

Off by default

Shape: Delayed

When education is cut, skills and productivity weaken after several years, which lowers future wages and tax revenue.

Disputed assumption – may not work this way in reality

Economists disagree whether this effect works, and how strongly.

The link between education and productivity is widely accepted, but how much a given cut lowers tax revenue, and when, is disputed. Some researchers consider the effect large, others close to zero if the cut targets inefficient spending.

Of every 100 euros that a change to “Education” saves or brings in, 30 € is lost as revenue on the line “Personal income tax”, starting after 8 yrs and building up to its full size over 10 yrs. (The other way round if the change adds spending or cuts taxes.)

E(t) = s × T(t) × min(1, max(0, (n − delay + 1) / build-up))

Speculative assumption; the effect only starts to show in the 2030s.

How the effect builds up over time

Share of the change's own effect on the balance, year by year while the change continues: −15% means 15% of a saving comes back as cost (or 15% of extra revenue is lost). With the default values.

You can switch the effect on or off and adjust its assumptions in the simulator under Cause-and-effect chains.