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Redistribution through Education and Other Transfer Mechanisms

Author

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  • Hanushek, Eric

    (Stanford University)

  • Charles Ka Yui Leung

    (Chinese University of Hong Kong)

  • Kuzey Yilmaz

    (University of Rochester)

Abstract

Educational subsidies are frequently justified as a method of altering the Income distribution. It is thus natural to compare education to other tax-transfer schemes designed to achieve distributional objectives. While equity-efficiency trade-offs are frequently discussed, they are rarely explicitly treated. This paper creates a general equilibrium model of school attendance, labor supply, wage determination, and aggregate production, which is used to compare alternative redistribution devices in terms of both deadweight loss and distributional outcomes. A wage subidy generally dominates tuition subsidies in ex ante (or "opportunity") calculations, but this reverses in ex post (or "realized") calculations. Both are generally superior to a negative income tax. With externalities in production, however, there is an unambiguous role for governmental subsidy of education, because it both raises GDP and creates a more equal income distribution.

Suggested Citation

  • Hanushek, Eric & Charles Ka Yui Leung & Kuzey Yilmaz, 2002. "Redistribution through Education and Other Transfer Mechanisms," Royal Economic Society Annual Conference 2002 94, Royal Economic Society.
  • Handle: RePEc:ecj:ac2002:94
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    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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