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Education: Optimal Choice and Efficient Policy

Author

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  • Wolfram F. Richter
  • Kerstin Schneider

Abstract

The research on earnings determination is based on the Mincer-Becker assumption that individuals decide on schooling by maximizing income. This paper offers an alternative and less restrictive approach based on utility maximization. Using this approach, we analyze the efficiency of education policy in Ramsey’s tradition. Distortive wage taxation is shown to provide an efficiency reason for subsidizing education in effective terms. Second-best policy is confronted with empirical evidence for OECD countries.

Suggested Citation

  • Wolfram F. Richter & Kerstin Schneider, 2015. "Education: Optimal Choice and Efficient Policy," CESifo Working Paper Series 5352, CESifo.
    • Handle: RePEc:ces:ceswps:_5352
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    References listed on IDEAS

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    More about this item

    Keywords

    schooling choice and earnings functions; utility vs. earnings maximization; power law of learning; second-best taxation in Ramsey's tradition; empirical evidence;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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