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Redistributive Taxation, Incentives, and the Intertemporal Evolution of Human Capital

  • Christian Ferreda
  • Matías Tapia

This paper contributes to the literature on redistributive taxation and human capital dynamics by explicitly analyzing the role of incentives in the education market where human capital is produced. We introduce an explicit education market with heterogeneous private schools in a dynamic stochastic general equilibrium model with overlapping generations and human capital accumulation. We use the model to simulate the effects of taxation on growth, intergenerational mobility, inequality, and welfare. Equalization in education expenditures reduces incentives for differentiation in the education market, with the distribution of education investments shifting towards the least productive schools. This has significant consequences on equilibrium outcomes, and highlights the importance of incorporating the role of intermediation when analyzing redistribution policies.

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File URL: http://www.economia.uc.cl/docs/dt_390.pdf
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Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 390.

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Date of creation: 2010
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Handle: RePEc:ioe:doctra:390
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  1. Bohacek, Radim & Kapicka, Marek, 2008. "Optimal human capital policies," Journal of Monetary Economics, Elsevier, vol. 55(1), pages 1-16, January.
  2. Bernardita Vial, 2008. "Competitive Equilibrium and Reputation under Imperfect Public Monitoring," Documentos de Trabajo 327, Instituto de Economia. Pontificia Universidad Católica de Chile..
  3. James Heckman & Flavio Cunha, 2007. "The Technology of Skill Formation," American Economic Review, American Economic Association, vol. 97(2), pages 31-47, May.
  4. José De Gregorio & Se-Jik Kim, 1998. "Credit Markets with Differences in Abilities: Education, Distribution, and Growth," Documentos de Trabajo 42, Centro de Economía Aplicada, Universidad de Chile.
  5. Luís Francisco Aguiar-Conraria, 2004. "Public vs Private Schooling in an Endogenous Growth Model," NIPE Working Papers 7/2004, NIPE - Universidade do Minho.
  6. Kaganovich, Michael & Zilcha, Itzhak, 1999. "Education, social security, and growth," Journal of Public Economics, Elsevier, vol. 71(2), pages 289-309, February.
  7. Gianni de Fraja, 2002. "The Design of Optimal Education Policies," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 437-466.
  8. Cardak, Buly A., 2005. "Education Vouchers, Growth, And Income Inequality," Macroeconomic Dynamics, Cambridge University Press, vol. 9(01), pages 98-121, February.
  9. Urquiola, Miguel & Verhoogen, Eric A, 2007. "Class Size and Sorting in Market Equilibrium: Theory and Evidence," CEPR Discussion Papers 6425, C.E.P.R. Discussion Papers.
  10. Thomas J. Nechyba, 2000. "Mobility, Targeting, and Private-School Vouchers," American Economic Review, American Economic Association, vol. 90(1), pages 130-146, March.
  11. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March.
  12. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  13. MacLeod, Bentley, 2009. "Anti-Lemons: School Reputation and Educational Quality," Department of Economics, Working Paper Series qt3rc708kd, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  14. 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 818-34, August.
  15. Minoru Watanabe & Masaya Yasuoka, 2009. "Income growth, inequality and preference for education investment: a note," Economics Bulletin, AccessEcon, vol. 29(4), pages 3075-3082.
  16. Dennis Epple & Richard Romano, 2002. "Educational Vouchers and Cream Skimming," NBER Working Papers 9354, National Bureau of Economic Research, Inc.
  17. Matías Tapia, 2010. "Competition, Incentives, and the Distribution of Investments in Private School Markets," Documentos de Trabajo 387, Instituto de Economia. Pontificia Universidad Católica de Chile..
  18. Miguel Urquiola, 2005. "Does School Choice Lead to Sorting? Evidence from Tiebout Variation," American Economic Review, American Economic Association, vol. 95(4), pages 1310-1326, September.
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