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Do Training Funds Raise the Pace of Training? The Case of Mauritius


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  • Oluyemisi Kuku
  • Orazem, Peter
  • Sawkut Rojid
  • Vodopivec, Milan


Many developing countries have tried to increase firm provision of training by providing subsidies funded by taxes proportional to the firm’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 Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 35729.

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Date of creation: 19 Dec 2012
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Handle: RePEc:isu:genres:35729

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Keywords: training; General Skills; firm-specific skills; training fund; externality; cross-subsidy; tax;

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  1. Dan A. Black & Brett J. Noel & Zheng Wang, 1999. "On-the-Job Training, Establishment Size, and Firm Size: Evidence for Economies of Scale in the Production of Human Capital," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 82-100, July.
  2. David Card & Jochen Kluve & Andrea Weber, 2009. "Active Labor Market Policy Evaluations – A Meta-analysis," Ruhr Economic Papers 0086, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  3. Daron Acemoglu & Jorn-Steffen Pischke, 1996. "Why Do Firms Train? Theory and Evidence," NBER Working Papers 5605, National Bureau of Economic Research, Inc.
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