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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. Gianni de Fraja, 2002. "The Design of Optimal Education Policies," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 437-466.
  2. Thomas J. Nechyba, 2000. "Mobility, Targeting, and Private-School Vouchers," American Economic Review, American Economic Association, vol. 90(1), pages 130-146, March.
  3. Miguel Urquiola & Eric Verhoogen, 2007. "Class Size and Sorting in Market Equilibrium: Theory and Evidence," NBER Working Papers 13303, National Bureau of Economic Research, Inc.
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  5. 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.
  6. Marek Kapicka & Radim Bohacek, 2007. "Optimal Human Capital Policies," 2007 Meeting Papers, Society for Economic Dynamics 464, Society for Economic Dynamics.
  7. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 843-67, June.
  8. Luís Aguiar-Conraria, 2005. "Public vs private schooling in an endogenous growth model," Economics Bulletin, AccessEcon, vol. 9(10), pages 1-6.
  9. Bernardita Vial, 2008. "Competitive Equilibrium and Reputation under Imperfect Public Monitoring," Documentos de Trabajo, Instituto de Economia. Pontificia Universidad Católica de Chile. 327, Instituto de Economia. Pontificia Universidad Católica de Chile..
  10. Kaganovich, M & Zilcha, I, 1997. "Education, Social Security and Growth," Papers, Tel Aviv 1-97, Tel Aviv.
  11. Jose De Gregorio & Se-Jik Kim, 1994. "Credit Markets with Differences in Abilities," IMF Working Papers 94/47, International Monetary Fund.
  12. Buly A Cardak, 2001. "Education Vouchers, Growth and Income Inequality," Working Papers 2001.06, School of Economics, La Trobe University.
  13. Matías Tapia, 2010. "Competition, Incentives, and the Distribution of Investments in Private School Markets," Documentos de Trabajo, Instituto de Economia. Pontificia Universidad Católica de Chile. 387, Instituto de Economia. Pontificia Universidad Católica de Chile..
  14. 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.
  15. 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, University of Chicago Press, vol. 100(4), pages 818-34, August.
  16. W. Bentley MacLeod & Miguel Urquiola, 2009. "Anti-Lemons: School Reputation and Educational Quality," NBER Working Papers 15112, National Bureau of Economic Research, Inc.
  17. Minoru Watanabe & Masaya Yasuoka, 2009. "Income growth, inequality and preference for education investment: a note," Economics Bulletin, AccessEcon, vol. 29(4), pages 3075-3082.
  18. 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.
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