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Interest Rate, Human Capital and Tax


  • Saibal Kar


Individual decision-making is naturally subjected to various micro and macroeconomic policies of the government. Choice of schooling by an individual is also affected by such public policies. We show that the distribution of individuals in a scale of risk aversion, ex post, is strongly influenced by factors like discount rate, market interest rate and tax-subsidy policies. We obtain the relative distribution (and therefore, supply) of individuals acquiring human capital in the economy as determined by the critical degree of risk aversion. Rise in market interest rate, consequent on higher discount rates may lower participation in schools. Corrective tax-subsidy policies may only conditionally improve the aggregate level of human capital in the economy.

Suggested Citation

  • Saibal Kar, 2013. "Interest Rate, Human Capital and Tax," Review of Market Integration, India Development Foundation, vol. 5(1), pages 71-82, April.
  • Handle: RePEc:sae:revmar:v:5:y:2013:i:1:p:71-82

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