Human capital formation and general equilibrium treatment effects: a study of tax and tuition policy
Policies to promote human capital formation have been advocated as a remedy for reducing the economy-wide problem of rising wage inequality. These policies are national in character and are designed to substantially alter the proportion of the work-force that is skilled. Yet the methods used to evaluate these policies are partial equilibrium in nature and do not take account of the consequences of the changes in skill prices that are produced by the policies. This paper summarises our research on general equilibrium evaluation of tuition and tax policies. We compare estimates of policy impact from our approach with those obtained from conventional partial equilibrium ‘treatment effect’ approaches to policy evaluation, and find substantial differences. Conventional partial equilibrium approaches present an overly optimistic view of what tax and tuition policy can achieve because they ignore the change in human capital investment levels induced by the change in prices due to the policy. In addition, conventional partial equilibrium approaches fail to provide an accurate assessment of the welfare consequences of these policies.
Volume (Year): 20 (1999)
Issue (Month): 1 (March)
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References listed on IDEAS
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- James Davies & John Whalley, 1991.
"Taxes and Capital Formation: How Important is Human Capital?,"
NBER Chapters,in: National Saving and Economic Performance, pages 163-200
National Bureau of Economic Research, Inc.
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- Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 11-44, August.
- B. Douglas Bernheim & John B. Shoven, 1991. "National Saving and Economic Performance," NBER Books, National Bureau of Economic Research, Inc, number bern91-2, October.
- James J. Heckman & Lance Lochner & Christopher Taber, 1999. "General Equilibrium Cost Benefit Analysis of Education and Tax Policies," NBER Working Papers 6881, National Bureau of Economic Research, Inc. Full references (including those not matched with items on IDEAS)
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