Do Training Funds Raise the Pace of Training? The Case of Mauritius
AbstractMany developing countries have tried to increase firm provision of training by providing subsidies funded by taxes proportional to the firmâ€™s wage bill.� These training funds, however, may backfire if the adverse effect of the tax on training incentives outweighs the positive effects of the subsidy.� We show that the value of these training funds depends critically on the extent to which firms are liquidity constrained.� If the effective firm discount rate is low, the disincentives outweigh the benefits.� Using an administrative dataset on the Mauritius training fund, we show that larger, high-wage and more capital intensive firms are the most likely to offer to training without the subsidy, but that the subsidy creates an increased incentives for small firms to train.� As a result, the largest firms pay more in taxes than they gain in subsidies while the smallest firms receive more benefits than they pay in taxes.� Consequently, the program shifts net training investments away from the firms that would normally have the greatest return from training and toward smaller firms that would normally have the lowest return from training.� It is doubtful that the program actually raises the incidence of training overall.�
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 35729.
Date of creation: 19 Dec 2012
Date of revision:
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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More information through EDIRC
training; General Skills; firm-specific skills; training fund; externality; cross-subsidy; tax;
Other versions of this item:
- Oluyemisi Kuku & Peter F. Orazem & Sawkut Rojid & Milan Vodopivec, 2013. "Do Training Funds Raise the Pace of Training? The Case of Mauritius," Diversity, Technology, and Innovation for Operational Competitiveness: Proceedings of the 2013 International Conference on Technology Innovation and Industrial Management, ToKnowPress.
- M53 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Training
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- O2 - Economic Development, Technological Change, and Growth - - Development Planning and Policy
- O55 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Africa
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