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|
|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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- Rehme, G., 1999. "Public Policies and Education, Economic Growth and Income Distribution," Economics Working Papers eco99/14, European University Institute.
- Panu Poutvaara, 2000.
"Education, Mobility of Labour and Tax Competition,"
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Springer;International Institute of Public Finance, vol. 7(6), pages 699-719, December.
- 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.
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