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Redistribution through education and other transfer mechanisms

  • Hanushek, Eric A.
  • Leung, Charles Ka Yui
  • Yilmaz, Kuzey

Educational subsidies are frequently justified as a method of altering the income distribution. It is thus natural to compare education to other tax-transfer schemes designed to achieve distributional objectives. While equity-efficiency trade-offs are frequently discussed, they are rarely explicitly treated. This paper creates a general equilibrium model of school attendance, labor supply, wage determination, and aggregate production, which is used to compare alternative redistribution devices in terms of both deadweight loss and distributional outcomes. A wage subidy generally dominates tuition subsidies in ex ante (or 'opportunity') calculations, but this reverses in ex post (or 'realized') calculations. Both are generally superior to a negative income tax. With externalities in production, however, there is an unambiguous role for governmental subsidy of education, because it both raises GDP and creates a more equal income distribution.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 50 (2003)
Issue (Month): 8 (November)
Pages: 1719-1750

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Handle: RePEc:eee:moneco:v:50:y:2003:i:8:p:1719-1750
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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