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Education: Optimal choice and efficient policy

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  • Wolfram F. Richter
  • Kerstin Schneider

Abstract

This paper argues that it suffices to assume distortionary wage taxation to prove the efficiency of effective subsidization of education. The paper does not rely on considerations of equity and market failure to justify subsidies. Instead, the optimal subsidy reduces the social cost of distortive wage taxation. The theoretical approach assumes a Mincer‐type earnings function, analyzes corner solutions of optimal schooling choice and derives the result of efficient subsidization in a Ramsey‐type framework. Second‐best policy is confronted with empirical evidence from OECD countries. The majority of countries are shown to subsidize tertiary education in effective terms. Éducation : choix optimal et politique efficace. Afin de démontrer l'efficacité d'un subventionnement effectif de l'éducation, nous affirmons qu'il suffit de supposer une distorsion des salaires. Pour justifier ces subventions, nous écartons toute considération d'équité ou de déficience du marché. À la place, nous affirmons qu'un subventionnement optimal permet de réduire le coût social lié à la distorsion de la fiscalité sur les salaires. L'approche théorique s'appuie sur une fonction de gains de Mincer, évalue les solutions d'angle relativement aux choix d'études optimaux puis extrapole le résultat d'un subventionnement efficace dans un modèle de Ramsey. La politique de second choix est comparée aux observations empiriques réalisées au sein pays de l'OCDE. Il apparaît que la plupart des pays subventionnent l'enseignement supérieur en termes effectifs.

Suggested Citation

  • Wolfram F. Richter & Kerstin Schneider, 2021. "Education: Optimal choice and efficient policy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(2), pages 840-863, May.
  • Handle: RePEc:wly:canjec:v:54:y:2021:i:2:p:840-863
    DOI: 10.1111/caje.12518
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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