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Imperfect capital markets and the public provision of education

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  • P. Hare
  • D. Ulph

Abstract

An intergenerational model of wealth distribution is the basis for an analysis of educational policy: specifically grants, loans and subsidies. Parents endow their children with education and/or cash bequest; the child's earned income and the cash bequest may be taxed. For given tax schedules and a given distribution of abilities in the population, the distribution of wealth eventually approaches an equilibrium. Initially we characterise the optimal tax schedules, using a welfare function based on the long run equilibrium wealth distribution. We then enquire whether grants, loans or subsidies would form part of an optimal distributional policy. It turns out that educational grants are desirable if they are the only additional instrument available, but loans appear to be superior, although the model needs further development to analyse them fully: the model is formulated for subsidies, but not solved in this paper. Copyright Martinus Nijhoff Publishers 1981

Suggested Citation

  • P. Hare & D. Ulph, 1981. "Imperfect capital markets and the public provision of education," Public Choice, Springer, vol. 36(3), pages 481-507, January.
    • Handle: RePEc:kap:pubcho:v:36:y:1981:i:3:p:481-507
    DOI: 10.1007/BF00128732
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    References listed on IDEAS

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    1. Ulph, David, 1977. "On the optimal distribution of income and educational expenditure," Journal of Public Economics, Elsevier, vol. 8(3), pages 341-356, December.
    2. Seade, J. K., 1977. "On the shape of optimal tax schedules," Journal of Public Economics, Elsevier, vol. 7(2), pages 203-235, April.
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    4. Nerlove, Marc, 1972. "On Tuition and the Costs of Higher Education: Prolegomena to a Conceptual Framework," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages 178-218, Part II, .
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    7. Susan Nelson & David Breneman, 1981. "An equity perspective on community college finance," Public Choice, Springer, vol. 36(3), pages 515-532, January.
    8. Hare, P G & Ulph, D T, 1979. "On Education and Distribution," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 193-212, October.
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    Cited by:

    1. John Fender & Ping Wang, 2000. "Educational Policy and Skill Heterogeneity with Credit Market Imperfections," Vanderbilt University Department of Economics Working Papers 0021, Vanderbilt University Department of Economics.
    2. John Fender & Ping Wang, 2003. "Educational Policy in a Credit Constrained Economy with Skill Heterogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 939-964, August.
    3. De Fraja, Gianni, 1999. "Equal Opportunities in Education: Market Equilibrium and Public Policy," CEPR Discussion Papers 2090, C.E.P.R. Discussion Papers.
    4. Madden, Paul, 1996. "Suppes-Sen dominance, generalised Lorenz dominance and the welfare economics of competitive equilibrium: Some examples," Journal of Public Economics, Elsevier, vol. 61(2), pages 247-262, August.
    5. Balestrino, Alessandro, 1997. "Education policy in a non-altruistic model of intergenerational transfers with endogenous fertility," European Journal of Political Economy, Elsevier, vol. 13(1), pages 157-169, February.

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