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Educational System, Altruism and Inequality in the Distribution of Income

This paper studies the impact of public provision of education on the distribution of income in a framework where parents are altruistic toward children. Any child receives two transfers, one as a non-human transfer and the other as a human capital transfer. Under different education regimes, non-human transfers offset the low realization of innate ability, which despite the human capital transfer implies a low level of earnings. Then the questions that will arise are, first, to what extent skill-compensating investments are important as ex-ante income inequality reduction mechanisms in the private provision system, and secondly, how public education can affect this reduction mechanism. I show that tax policy may have unexpected effects on the compensatory effect, that is, on the income gap. The result is that the distribution of income induced by the public provision system is not more equally distributed. Moreover, the fraction of population that does not improve is just at the bottom of the income distribution. I also explore some possibilities to avoid this negative effect and preserve public education as an essential public service.

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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2004/46.

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Length: 40 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:cea:doctra:e2004_46
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  1. Luisa Fuster, 2000. "Capital Accumulation in an Economy with Dynasties and Uncertain Lifetimes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 650-674, October.
  2. Zhang, Jie, 1996. " Optimal Public Investments in Education and Endogenous Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(3), pages 387-404.
  3. Laitner, John, 1992. "Random earnings differences, lifetime liquidity constraints, and altruistic intergenerational transfers," Journal of Economic Theory, Elsevier, vol. 58(2), pages 135-170, December.
  4. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  5. Hopenhayn, Hugo A & Prescott, Edward C, 1992. "Stochastic Monotonicity and Stationary Distributions for Dynamic Economies," Econometrica, Econometric Society, vol. 60(6), pages 1387-406, November.
  6. Davies, James B, 1986. "Does Redistribution Reduce Inequality?," Journal of Labor Economics, University of Chicago Press, vol. 4(4), pages 538-59, October.
  7. Jordi Caballé & Luisa Fuster, 2003. "Pay-as-you-go Social Security and the Distribution of Altruistic Transfers," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 541-567.
  8. Eckstein, Z. & Zilcha, I., 1991. "The Effects of Compulsury Schooling on Growth Income Distribution and Welfare," Papers 38-91, Tel Aviv.
  9. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 659-84, August.
  10. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
  11. Zilcha, I., 1996. "Intergenerational Transfers, Economic Growth and Income Distribution," Papers 27-96, Tel Aviv - the Sackler Institute of Economic Studies.
  12. Abel, Andrew B, 1985. "Precautionary Saving and Accidental Bequests," American Economic Review, American Economic Association, vol. 75(4), pages 777-91, September.
  13. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  14. Luisa Fuster, 1995. "Altruism, uncertain lifetime and the distribution of wealth," Economics Working Papers 150, Department of Economics and Business, Universitat Pompeu Fabra.
  15. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-89, December.
  16. Laitner, John, 1979. "Household Bequest Behaviour and the National Distribution of Wealth," Review of Economic Studies, Wiley Blackwell, vol. 46(3), pages 467-83, July.
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