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Macrodynamic Implications of Income Transfer Policies for Human Capital Investment and School Effort

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  • Orazem, Peter
  • Tesfatsion, Leigh S.

Abstract

The distortion in educational investment in poorer children is often attributed to credit market imperfections and hence to the unequal access of children to educational opportunity. However, the distortion might also be attributable to disincentive effects that cause children to make inefficient use of educational opportunities. This possibility is demonstrated for an overlapping generations economy with multiple family dynasties in which children have random unobservable abilities and base their school effort on their parentsム after-tax returns to schooling. Income redistribution can result in suboptimal effort choices that offset the beneficial effects of income transfers and sharply lower social welfare.Annotated pointers to related work can be accessed at http://www.econ.iastate.edu/tesfatsi/dehome.htm

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 1683.

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Date of creation: 01 Nov 1997
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Publication status: Published in Journal of Economic Growth, November 1997, vol. 2, pp. 305-329
Handle: RePEc:isu:genres:1683

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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  1. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers, Stanford - Institute for Thoretical Economics 47, Stanford - Institute for Thoretical Economics.
  2. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  3. Taubman, Paul, 1989. "Role of Parental Income in Educational Attainment," American Economic Review, American Economic Association, American Economic Association, vol. 79(2), pages 57-61, May.
  4. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  5. Zimmerman, David J, 1992. "Regression toward Mediocrity in Economic Stature," American Economic Review, American Economic Association, American Economic Association, vol. 82(3), pages 409-29, June.
  6. Steven H. Sandell & David Shapiro, 1980. "Work Expectations, Human Capital Accumulation, and the Wages of Young Women," Journal of Human Resources, University of Wisconsin Press, vol. 15(3), pages 335-353.
  7. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-77, September.
  8. Charles T. Clotfelter & Michael Rothschild, 1993. "Studies of Supply and Demand in Higher Education," NBER Books, National Bureau of Economic Research, Inc, number clot93-1.
  9. repec:att:wimass:9110 is not listed on IDEAS
  10. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 843-67, June.
  11. Galor, Oded & Tsiddon, Daniel, 1997. " The Distribution of Human Capital and Economic Growth," Journal of Economic Growth, Springer, Springer, vol. 2(1), pages 93-124, March.
  12. Tesfatsion, Leigh, 1997. "How Economists Can Get Alife," Staff General Research Papers, Iowa State University, Department of Economics 1685, Iowa State University, Department of Economics.
  13. Anne C. Case & Lawrence F. Katz, 1991. "The Company You Keep: The Effects of Family and Neighborhood on Disadvantaged Youths," NBER Working Papers 3705, National Bureau of Economic Research, Inc.
  14. Francine D. Blau & Marianne A. Ferber, 1991. "Career Plans and Expectations of Young Women and Men: The Earnings Gap and Labor Force Participation," Journal of Human Resources, University of Wisconsin Press, vol. 26(4), pages 581-607.
  15. King, Robert G & Rebelo, Sergio, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S126-50, October.
  16. Charles F. Manski, 1993. "Adolescent Econometricians: How Do Youth Infer the Returns to Schooling?," NBER Chapters, in: Studies of Supply and Demand in Higher Education, pages 43-60 National Bureau of Economic Research, Inc.
  17. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(4), pages 755-76, October.
  18. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, American Economic Association, vol. 82(3), pages 393-408, June.
  19. Hanushek, Eric A., 2006. "School Resources," Handbook of the Economics of Education, Elsevier, Elsevier.
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Cited by:
  1. Hatsor, Limor, 2012. "Occupational choice: Teacher quality versus teacher quantity," Labour Economics, Elsevier, Elsevier, vol. 19(4), pages 608-623.
  2. Michael Neugart & Jan Tuinstra, 2002. "Endogenous fluctuations in the demand for education," Computing in Economics and Finance 2002, Society for Computational Economics 107, Society for Computational Economics.
  3. Efraín Rodríguez Lozano, 2011. "¿Barreras Lingüísticas en la Educación?: La Influencia de la Lengua Materna en la Deserción Escolar," Documentos de Trabajo, Departamento de Economía - Pontificia Universidad Católica del Perú 2011-324, Departamento de Economía - Pontificia Universidad Católica del Perú.
  4. Wozny Lukasz & Growiec Jakub, 2012. "Intergenerational Interactions in Human Capital Accumulation," The B.E. Journal of Theoretical Economics, De Gruyter, De Gruyter, vol. 12(1), pages 1-47, June.
  5. Leonid Azarnert, 2006. "Free Education: For Whom, Where and When?," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c011_024, DEGIT, Dynamics, Economic Growth, and International Trade.
  6. Jean-Marie Viaene & Itzhak Zilcha, 2000. "Optimal Education with Mobile Capital. An OLG Approach (new title: Optimal Public Education under Capital Mobility)," CESifo Working Paper Series 289, CESifo Group Munich.
  7. Bernhard Eckwert & Itzhak Zilcha, 2003. "The Effect of Better Information on Income Inequality," CESifo Working Paper Series 969, CESifo Group Munich.
  8. Nicolas Bauduin & Joël Hellier, 2006. "Skill Dynamics, Inequality and Social Policies," Working Papers 34, ECINEQ, Society for the Study of Economic Inequality.
  9. Mohamed Ben Mimoun, 2004. "Redistribution Through Education and Other Mechanisms Under. Capital-Market Imperfections and Uncertainty : A Welfare Effect Analysis," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) bla04110, Université Panthéon-Sorbonne (Paris 1).
  10. Viaene, Jean-Marie & Zilcha, Itzhak, 2002. "Public education under capital mobility," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 26(12), pages 2005-2036, October.
  11. Haris Munandar, 2008. "Heterogeneous Agents, Human Capital Formation and International Income Inequality," Tinbergen Institute Discussion Papers 08-015/2, Tinbergen Institute.
  12. Debasis Bandyopadhyay & Parantap Basu, 2000. "The Growth-Inequality Relationship in a Model with Discrete Occupational Choice and Redistributive Tax," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0809, Econometric Society.

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