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Income Redistribution as Human Capital Insurance

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  • William R. Johnson

Abstract

This paper considers whether empirical evidence exists that is consistent with the view of income redistribution as human capital insurance. If parents can invest in their children with schooling and bequests, but the returns to schooling are risky because diversification is limited, then, in the absence of private insurance, risk-averse parents may choose to impose redistribution on their children's generation. Under certain conditions, the desired amount of income redistribution rises with the return to human capital. Empirically, cross-country comparisons show a positive relation between industrial activity and income redistribution, holding income constant, a relation that is consistent with the theory, if the return to human capital investment is raised by industrialization. Of course there may be other explanations for this finding.

Suggested Citation

  • William R. Johnson, 1987. "Income Redistribution as Human Capital Insurance," Journal of Human Resources, University of Wisconsin Press, vol. 22(2), pages 269-280.
  • Handle: RePEc:uwp:jhriss:v:22:y:1987:i:2:p:269-280
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    Cited by:

    1. Alessandro Cigno, 2010. "How to Deal with Covert Child Labour, and Give Children an Effective Education, in a Poor Developing Country: An Optimal Taxation Problem with Moral Hazard," CESifo Working Paper Series 3077, CESifo Group Munich.
    2. Roland Vaubel, 2012. "Redistribution as income insurance?," Public Choice, Springer, vol. 152(3), pages 389-392, September.
    3. Anneli Kaasa, 2005. "Factors Of Income Inequality And Their Influence Mechanisms: A Theoretical Overview," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 40, Faculty of Economics and Business Administration, University of Tartu (Estonia).

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