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Inducing Human Capital Formation: How Efficient Is an Education Subsidy?

Author

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  • Sahana Roy Chowdhury

    (Monetary Research Project, ICRA Limited, India and Indian Statistical Institute, India)

Abstract

This paper presents a two-step job ladder model where a skilled individual faces uncertainty in getting a skilled job and an inferior (unskilled) job down the job ladder is the alternative employment opportunity. When the probability of getting the skilled job is low enough, the model suggests the optimal policy to reach the social optimum is taxing rather than subsidizing human capital investment. The paper analyses the conditions when migration can act as a substitute for subsidizing human capital formation by moving the private optimum closer to the social optimum.

Suggested Citation

  • Sahana Roy Chowdhury, 2010. "Inducing Human Capital Formation: How Efficient Is an Education Subsidy?," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 9(2), pages 105-114, August.
  • Handle: RePEc:ijb:journl:v:9:y:2010:i:2:p:105-114
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    References listed on IDEAS

    as
    1. Guglielmo Maria Caporale, 2005. "The BDS Test as a Test for the Adequacy of a GARCH(1,1) Specification: A Monte Carlo Study," Journal of Financial Econometrics, Society for Financial Econometrics, pages 282-309.
    2. Caucutt, Elizabeth M. & Kumar, Krishna B., 2003. "Higher education subsidies and heterogeneity: a dynamic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 27(8), pages 1459-1502, June.
    3. Stark, Oded & Wang, Yong, 2002. "Inducing human capital formation: migration as a substitute for subsidies," Journal of Public Economics, Elsevier, pages 29-46.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    human capital formation; externalities; job uncertainty; education subsidy; migration;

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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