Unequal wages for equal utilities
When educational policy is supplemented by a redistributive income tax, and when individualsdiffer in their ability to benefit from education, the optimal policy is typically rather regressive.Resources are concentrated on the most able individuals in order to get a "cake" as big aspossible to share among individuals through income taxation. In this paper we put forwardanother reason to push for regressive education. It is not linked to heterogeneity in innate ability to benefit from education but to pervasive non-convexities that arise in the optimal income tax problem when individual productivities are endogenous. For simplicity we assume a lineareducation technology and a given total education budget. To give the equal wage outcome thebest chance to emerge, we also assume that individuals have identical learning abilities.Nevertheless, it turns out that in the first-best wage inequality is always preferable to wageequality. Even more surprisingly, this conclusion remains valid in the second-best (unless adhoc restriction on the feasible degree of a wage differentiation are imposed). This is in spite ofthe fact that wage equalization would eliminate any need for distortionary income taxation.
|Date of creation:||01 Dec 2007|
|Contact details of provider:|| Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)|
Fax: +32 10474304
Web page: http://www.uclouvain.be/core
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stiglitz, Joseph E., 1982.
"Self-selection and Pareto efficient taxation,"
Journal of Public Economics,
Elsevier, vol. 17(2), pages 213-240, March.
- Ulph, David, 1977. "On the optimal distribution of income and educational expenditure," Journal of Public Economics, Elsevier, vol. 8(3), pages 341-356, December.
- Alison L. Booth & Melvyn B. Coles, 2008.
"Tax Policy and Returns to Education,"
CEPR Discussion Papers
591, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- 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 818-834, August.
- Battaglini, Marco & Coate, Stephen, 2008.
"Pareto efficient income taxation with stochastic abilities,"
Journal of Public Economics,
Elsevier, vol. 92(3-4), pages 844-868, April.
- Stephen Coate & Marco Battaglini, 2004. "Pareto Efficient Income Taxation with Stochastic Abilities," 2004 Meeting Papers 140, Society for Economic Dynamics.
- Marco Battaglini & Stephen Coate, 2003. "Pareto Efficient Income Taxation with Stochastic Abilities," NBER Working Papers 10119, National Bureau of Economic Research, Inc.
- Booth, Alison L. & Coles, Melvyn, 2007.
"A microfoundation for increasing returns in human capital accumulation and the under-participation trap,"
European Economic Review,
Elsevier, vol. 51(7), pages 1661-1681, October.
- Alison Booth & Melvyn Coles, 2007. "A Microfoundation For Increasing Returns In Human Capital Accumulation And The Under-Participation Trap," CAMA Working Papers 2007-07, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Alison L. Booth & Melvyn Coles, 2006. "A Microfoundation for Increasing Returns in Human Capital Accumulation and the Under-Participation Trap," CEPR Discussion Papers 543, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- Becker, Gary S, 1985. "Human Capital, Effort, and the Sexual Division of Labor," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 33-58, January.
- Craig Brett & John Weymark, 2007.
"The Impact of Changing Skill Levels on Optimal Nonlinear Income Taxes,"
Vanderbilt University Department of Economics Working Papers
0708, Vanderbilt University Department of Economics.
- Brett, Craig & Weymark, John A., 2008. "The impact of changing skill levels on optimal nonlinear income taxes," Journal of Public Economics, Elsevier, vol. 92(7), pages 1765-1771, July.
- Darío Maldonado, 2008. "Education policies and optimal taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(2), pages 131-143, April.
- James M. Poterba, 1996.
"Government Intervention in the Markets for Education and Health Care: How and Why?,"
in: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, pages 277-308
National Bureau of Economic Research, Inc.
- James M. Poterba, 1994. "Government Intervention in the Markets for Education and Health Care: How and Why?," NBER Working Papers 4916, National Bureau of Economic Research, Inc.
- Bruno, Michael, 1976. "Equality, complementarity and the incidence of public expenditures," Journal of Public Economics, Elsevier, vol. 6(4), pages 395-407, November.
- Bovenberg, A.L. & Jacobs, B., 2001.
"Redistribution and Education Subsidies are Siamese Twins,"
2001-82, Tilburg University, Center for Economic Research.
- Lans Bovenberg, A. & Jacobs, Bas, 2005. "Redistribution and education subsidies are Siamese twins," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2005-2035, December.
- Bovenberg, A Lans & Jacobs, Bas, 2001. "Redistribution and Education Subsidies are Siamese Twins," CEPR Discussion Papers 3099, C.E.P.R. Discussion Papers.
- Kenneth J. Arrow, 1971. "A Utilitarian Approach to the Concept of Equality in Public Expenditures," The Quarterly Journal of Economics, Oxford University Press, vol. 85(3), pages 409-415.
- A. Lans Bovenberg & Bas Jacobs, 2005. "Redistribution and Education Subsidies are Siamese Twins," Tinbergen Institute Discussion Papers 05-036/3, Tinbergen Institute.
- Wildasin, David E., 1986. "Spatial variation of the marginal utility of income and unequal treatment of equals," Journal of Urban Economics, Elsevier, vol. 19(1), pages 125-129, January.
- J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
When requesting a correction, please mention this item's handle: RePEc:cor:louvco:2007095. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alain GILLIS)
If references are entirely missing, you can add them using this form.