Why to Invest in your Neighbor? Social Contract on Educational Investment
It may be in the interest of low-ability individuals to subsidize the education of high-ability individuals. Sufficient conditions are surprisingly mild: positive externalities in education and complementarity in production between human capital and labor supplied by the low-ability individuals. However, tax competition and the free mobility of the educated give rise to time-inconsistency and free-riding problems which render such a social contract infeasible and result in a suboptimally low investment in education.
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|Date of creation:||1999|
|Date of revision:|
|Contact details of provider:|| Postal: University of Helsinki; Department of Economics, P.O.Box 54 (Unioninkatu 37) FIN-00014 Helsingin Yliopisto|
Phone: +358 9 191 8897
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Web page: http://www.helsinki.fi/politiikkajatalous/
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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.:
- Eaton, Jonathan & Rosen, Harvey S, 1980.
"Taxation, Human Capital, and Uncertainty,"
American Economic Review,
American Economic Association, vol. 70(4), pages 705-15, September.
- Sinn, Hans-Werner, 1997.
"The selection principle and market failure in systems competition,"
Journal of Public Economics,
Elsevier, vol. 66(2), pages 247-274, November.
- Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Munich Reprints in Economics 19854, University of Munich, Department of Economics.
- Hamilton, Jonathan H, 1987. "Optimal Wage and Income Taxation with Wage Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 373-88, June.
- David E. Wildasin, 2000. "Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition," American Economic Review, American Economic Association, vol. 90(1), pages 73-95, March.
- Panu Poutvaara, 2000.
"Education, Mobility of Labour and Tax Competition,"
International Tax and Public Finance,
Springer, vol. 7(6), pages 699-719, December.
- Wildasin, David E, 1995. " Factor Mobility, Risk and Redistribution in the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 527-46, December.
- Rehme, G., 1999. "Public Policies and Education, Economic Growth and Income Distribution," Economics Working Papers eco99/14, European University Institute.
- Bhagwati, Jagdish N. & Hamada, Koichi, 1982. "Tax policy in the presence of emigration," Journal of Public Economics, Elsevier, vol. 18(3), pages 291-317, August.
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