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Why Invest in Your Neighbor? Social Contract on Educational Investment

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  • Panu Poutvaara
  • Vesa Kanniainen

Abstract

It may be in the interestof low-ability individuals to subsidize the education of high-abilityindividuals. The sufficient conditions are surprisingly mild:positive externalities in education and complementarity in productionbetween human capital and labor supplied by the low-ability individuals.However, tax competition and the free mobility of the educatedgive rise to time-inconsistency and free-riding problems whichrender such a social contract infeasible and result in a suboptimallylow investment in education. Copyright Kluwer Academic Publishers 2000

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File URL: http://hdl.handle.net/10.1023/A:1008745708377
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 7 (2000)
Issue (Month): 4 (August)
Pages: 547-562

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Handle: RePEc:kap:itaxpf:v:7:y:2000:i:4:p:547-562

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: externalities in education; complementarity; social contract; tax competition;

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  1. Chapman, Bruce, 1997. "Conceptual Issues and the Australian Experience with Income Contingent Charges for Higher Education," Economic Journal, Royal Economic Society, vol. 107(442), pages 738-51, May.
  2. Poutvaara, Panu, 2000. "Education, mobility of labour and tax competition," Munich Reprints in Economics 19303, University of Munich, Department of Economics.
  3. Fernandez, Raquel & Rogerson, Richard, 1995. "On the Political Economy of Education Subsidies," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 249-62, April.
  4. Claudia Goldin & Lawrence F. Katz, 1998. "The Origins Of Technology-Skill Complementarity," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 693-732, August.
  5. Fernandez, Raquel & Rogerson, Richard, 1998. "Public Education and Income Distribution: A Dynamic Quantitative Evaluation of Education-Finance Reform," American Economic Review, American Economic Association, vol. 88(4), pages 813-33, September.
  6. Justman, M. & Thisse, J.-F., . "Implications of the mobility of skilled labor for local public funding of higher education," CORE Discussion Papers RP -1296, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Creedy, John & Francois, Patrick, 1990. "Financing higher education and majority voting," Journal of Public Economics, Elsevier, vol. 43(2), pages 181-200, November.
  8. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 237-64, April.
  9. Wildasin, David E, 1995. " Factor Mobility, Risk and Redistribution in the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 527-46, December.
  10. Bhagwati, Jagdish N. & Hamada, Koichi, 1982. "Tax policy in the presence of emigration," Journal of Public Economics, Elsevier, vol. 18(3), pages 291-317, August.
  11. Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Munich Reprints in Economics 19854, University of Munich, Department of Economics.
  12. David E. WILDASIN, 1997. "Income Distribution and Redistribution Within Federations," Annales d'Economie et de Statistique, ENSAE, issue 45, pages 291-313.
  13. Hindriks, Jean, 1999. "The consequences of labour mobility for redistribution: tax vs. transfer competition," Journal of Public Economics, Elsevier, vol. 74(2), pages 215-234, November.
  14. Hamilton, Jonathan H, 1987. "Optimal Wage and Income Taxation with Wage Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 373-88, June.
  15. Johnson, George E, 1984. "Subsidies for Higher Education," Journal of Labor Economics, University of Chicago Press, vol. 2(3), pages 303-18, July.
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