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Why to Invest in your Neighbor? Social Contract on Educational Investment

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Author Info

  • Poutvaara, P.
  • Kanniainen, V.

Abstract

It may be in the interest of low-ability individuals to subsidize the education of high-ability individuals. Sufficient conditions are surprisingly mild: positive externalities in education and complementarity in production between human capital and labor supplied by the low-ability individuals. However, tax competition and the free mobility of the educated give rise to time-inconsistency and free-riding problems which render such a social contract infeasible and result in a suboptimally low investment in education.

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Bibliographic Info

Paper provided by Department of Economics in its series University of Helsinki, Department of Economics with number 462.

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Length: 17 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:fth:helsec:462

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Postal: University of Helsinki; Department of Economics, P.O.Box 54 (Unioninkatu 37) FIN-00014 Helsingin Yliopisto
Phone: +358 9 191 8897
Fax: +358 9 191 8877
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Web page: http://www.helsinki.fi/politiikkajatalous/
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Keywords: EDUCATION ; CONTRACTS ; SOCIETY ; TAXATION;

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References

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  1. 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.
  2. David E. Wildasin, 2000. "Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition," American Economic Review, American Economic Association, vol. 90(1), pages 73-95, March.
  3. Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Munich Reprints in Economics 19854, University of Munich, Department of Economics.
  4. 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.
  5. Rehme, G., 1999. "Public Policies and Education, Economic Growth and Income Distribution," Economics Working Papers eco99/14, European University Institute.
  6. 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.
  7. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-15, September.
  8. Panu Poutvaara, 2000. "Education, Mobility of Labour and Tax Competition," International Tax and Public Finance, Springer, vol. 7(6), pages 699-719, December.
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Cited by:
  1. Andersson, Fredrik & Konrad, Kai A., 2001. "Globalization and Human Capital Formation," IZA Discussion Papers 245, Institute for the Study of Labor (IZA).

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