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Redistribution Through Education and Other Mechanisms Under Capital-Market Imperfections and Uncertainty: A Welfare Effect Analysis

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  • Ben Mimoun Mohamed

Abstract

This paper considers a two-period model of endogenous human capital formation under the credits-market imperfection and uncertainty assumptions. We compare in the first part of the paper ex-ante and ex-post general-equilibrium effects of the education subsidy policy to those of the negative income tax and the unskilled wage subsidy regimes. We show that the education subsidy policy raises an efficiency-inequality trade-off issue, and therefore it is optimal unless the degree of inequality aversion is relatively high and financing the subsidy is not too distorsive. Public loans are often claimed to provide a solution for such issue. We explore the implications of implementing the public loan under several schemes in the second part of the paper. We show that combining between a pure public loan and education subsidies provides higher welfare levels than these two policies taken separately provided that the inequality aversion degree is high. For low degrees of inequality aversion, the pure public loan is the optimal policy.
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Suggested Citation

  • Ben Mimoun Mohamed, 2005. "Redistribution Through Education and Other Mechanisms Under Capital-Market Imperfections and Uncertainty: A Welfare Effect Analysis," LABOUR, CEIS, vol. 19(2), pages 191-236, June.
  • Handle: RePEc:bla:labour:v:19:y:2005:i:2:p:191-236
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    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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