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Redistribution through Education and Other Transfer Mechanisms

  • Hanushek, Eric

    (Stanford University)

  • Charles Ka Yui Leung

    (Chinese University of Hong Kong)

  • Kuzey Yilmaz

    (University of Rochester)

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.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 94.

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Date of creation: 29 Aug 2002
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Handle: RePEc:ecj:ac2002:94
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