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Education, Growth, and Redistribution in the Presence of Capital Flight

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Author Info
Debajyoti Chakrabarty (The University of Sydney, Australia)
Areendam Chanda (Louisiana State University)
Chetan Ghate (Indian Statistical Institute - Delhi Center)

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Abstract

We construct an overlapping generations model to study the effect of capital controls on human capital investments and the incidence of redistributive taxation in a growing economy. We argue that the conventional wisdom linking higher capital controls to lower growth is reproduced only when an economy is sufficiently developed. For under-developed countries, higher capital controls are beneficial for human capital as well as domestic physical capital accumulation suggesting that the conventional wisdom does not apply. In an augmented version of the model, we show that a modern sector characterized by positive levels of investment in education may not exist unless capital controls are sufficiently high. Higher capital controls make it feasible for a modern sector to exist by lowering the threshold income level required by workers to invest in human capital. Our results are consistent with recent evidence suggesting that capital account liberalization positively affects growth only after a country has achieved a certain threshold level of absorptive capacities.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Topics in Macroeconomics.

Volume (Year): 6 (2006)
Issue (Month): 2 ()
Pages: 1442-1442
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Handle: RePEc:bep:mactop:v:6:y:2006:i:2:p:1442-1442

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Related research
Keywords: capital flight distributional conflict economic growth human capital income distribution international linkages to development long term capital movements optimal taxation

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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

References listed on IDEAS
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  2. Ananth Seshadri & Rodolfo Manuelli, 2005. "Human Capital and the Wealth of Nations," 2005 Meeting Papers 56, Society for Economic Dynamics.
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  4. Razin, Assaf & Sadka, Efraim, 1991. "Efficient investment incentives in the presence of capital flight," Journal of International Economics, Elsevier, vol. 31(1-2), pages 171-181, August. [Downloadable!] (restricted)
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  6. Bourguignon, François & Verdier, Thierry, 2001. "The Political Economy of Education and Development in an Open Economy," CEPR Discussion Papers 3075, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Caselli, Francesco & Feyrer, James, 2005. "The Marginal Product of Capital," CEPR Discussion Papers 5203, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  14. Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," Review of Economic Studies, Blackwell Publishing, vol. 71(4), pages 1001-1026, October. [Downloadable!] (restricted)
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  15. Alesina, Alberto & Tabellini, Guido, 1989. "External debt, capital flight and political risk," Journal of International Economics, Elsevier, vol. 27(3-4), pages 199-220, November. [Downloadable!] (restricted)
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  16. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May. [Downloadable!] (restricted)
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  17. Saint-Paul, Gilles & Verdier, Thierry, 1993. "Education, democracy and growth," Journal of Development Economics, Elsevier, vol. 42(2), pages 399-407, December. [Downloadable!] (restricted)
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  18. Oded Galor & Omer Moav, 2006. "Das Human-Kapital: A Theory of the Demise of the Class Structure," Review of Economic Studies, Blackwell Publishing, vol. 73(1), pages 85-117, 01. [Downloadable!] (restricted)
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  19. Mark Aguiar & Manuel Amador & Gita Gopinath, 2005. "Efficient Fiscal Policy and Amplification," NBER Working Papers 11490, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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