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Why Invest in Your Neighbor? Social Contract on Educational Investment

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Listed:
  • Panu Poutvaara
  • Vesa Kanniainen

Abstract

It may be in the interestof low-ability individuals to subsidize the education of high-abilityindividuals. The sufficient conditions are surprisingly mild:positive externalities in education and complementarity in productionbetween human capital and labor supplied by the low-ability individuals.However, tax competition and the free mobility of the educatedgive rise to time-inconsistency and free-riding problems whichrender such a social contract infeasible and result in a suboptimallylow investment in education. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • Panu Poutvaara & Vesa Kanniainen, 2000. "Why Invest in Your Neighbor? Social Contract on Educational Investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(4), pages 547-562, August.
  • Handle: RePEc:kap:itaxpf:v:7:y:2000:i:4:p:547-562
    DOI: 10.1023/A:1008745708377
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    More about this item

    Keywords

    externalities in education; complementarity; social contract; tax competition;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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