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Redistributive Taxation, Incentives, and the Intertemporal Evolution of Human Capital

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  • Christian Ferreda
  • Matías Tapia

Abstract

This paper contributes to the literature on redistributive taxation and human capital dynamics by explicitly analyzing the role of incentives in the education market where human capital is produced. We introduce an explicit education market with heterogeneous private schools in a dynamic stochastic general equilibrium model with overlapping generations and human capital accumulation. We use the model to simulate the effects of taxation on growth, intergenerational mobility, inequality, and welfare. Equalization in education expenditures reduces incentives for differentiation in the education market, with the distribution of education investments shifting towards the least productive schools. This has significant consequences on equilibrium outcomes, and highlights the importance of incorporating the role of intermediation when analyzing redistribution policies.

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Bibliographic Info

Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 390.

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Date of creation: 2010
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Handle: RePEc:ioe:doctra:390

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Keywords: Human capital; school market; redistributive taxation; inequality; efficiency;

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  1. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March.
  2. Miguel Urquiola & Eric A. Verhoogen, 2007. "Class size and sorting in market equilibrium: Theory and evidence," Discussion Papers 0607-14, Columbia University, Department of Economics.
  3. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  4. Gianni de Fraja, 2002. "The Design of Optimal Education Policies," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 437-466.
  5. James Heckman & Pedro Carneiro & Flavio Cunha, 2004. "The Technology of Skill Formation," 2004 Meeting Papers 681, Society for Economic Dynamics.
  6. Thomas J. Nechyba, 2000. "Mobility, Targeting, and Private-School Vouchers," American Economic Review, American Economic Association, vol. 90(1), pages 130-146, March.
  7. Minoru Watanabe & Masaya Yasuoka, 2009. "Income growth, inequality and preference for education investment: a note," Economics Bulletin, AccessEcon, vol. 29(4), pages 3075-3082.
  8. Dennis Epple & Richard Romano, 2008. "Educational Vouchers And Cream Skimming," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1395-1435, November.
  9. Luís Francisco Aguiar-Conraria, 2004. "Public vs Private Schooling in an Endogenous Growth Model," NIPE Working Papers 7/2004, NIPE - Universidade do Minho.
  10. MacLeod, Bentley, 2009. "Anti-Lemons: School Reputation and Educational Quality," Department of Economics, Working Paper Series qt3rc708kd, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  11. Bernardita Vial, 2008. "Competitive Equilibrium and Reputation under Imperfect Public Monitoring," Documentos de Trabajo 327, Instituto de Economia. Pontificia Universidad Católica de Chile..
  12. Bohacek, Radim & Kapicka, Marek, 2008. "Optimal human capital policies," Journal of Monetary Economics, Elsevier, vol. 55(1), pages 1-16, January.
  13. Buly A Cardak, 2004. "Education Vouchers, Growth and Income Inequality," Working Papers 2004.03, School of Economics, La Trobe University.
  14. Jose De Gregorio & Se-Jik Kim, 1994. "Credit Markets with Differences in Abilities," IMF Working Papers 94/47, International Monetary Fund.
  15. Kaganovich, Michael & Zilcha, Itzhak, 1999. "Education, social security, and growth," Journal of Public Economics, Elsevier, vol. 71(2), pages 289-309, February.
  16. Miguel Urquiola, 2005. "Does School Choice Lead to Sorting? Evidence from Tiebout Variation," American Economic Review, American Economic Association, vol. 95(4), pages 1310-1326, September.
  17. Matías Tapia, 2010. "Competition, Incentives, and the Distribution of Investments in Private School Markets," Documentos de Trabajo 387, Instituto de Economia. Pontificia Universidad Católica de Chile..
  18. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
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