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Macrodynamic Implications of Income-Transfer Policies for Human Capital Investment and School Effort

  • Orazem, Peter
  • Tesfatsion, Leigh

The distortion in educational investment in poorer children is often attributed to credit market imperfections and hence to the unequal access of children to educational opportunity. However, the distortion might also be attributable to disincentive effects that cause children to make inefficient use of educational opportunities. This possibility is demonstrated for an overlapping generations economy with multiple family dynasties in which children have random unobservable abilities and base their school effort on their parents' after-tax returns to schooling. Income redistribution can result in suboptimal effort choices that offset the beneficial effects of income transfers and sharply lower social welfare. Copyright 1997 by Kluwer Academic Publishers

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Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 2 (1997)
Issue (Month): 3 (September)
Pages: 305-29

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Handle: RePEc:kap:jecgro:v:2:y:1997:i:3:p:305-29
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  1. Hanushek, Eric A., 2006. "School Resources," Handbook of the Economics of Education, Elsevier.
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  17. Charles F. Manski, 1993. "Adolescent Econometricians: How Do Youth Infer the Returns to Schooling?," NBER Chapters, in: Studies of Supply and Demand in Higher Education, pages 43-60 National Bureau of Economic Research, Inc.
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  19. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-77, September.
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