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Macrodynamic Implications of Income Transfer Policies for Human Capital Investment and School Effort

  • Orazem, Peter
  • Tesfatsion, Leigh S.

The distortion in educational investment in poorer children is often attributed to credit market imperfections and hence to the unequal access of children to educational opportunity. However, the distortion might also be attributable to disincentive effects that cause children to make inefficient use of educational opportunities. This possibility is demonstrated for an overlapping generations economy with multiple family dynasties in which children have random unobservable abilities and base their school effort on their parentsム after-tax returns to schooling. Income redistribution can result in suboptimal effort choices that offset the beneficial effects of income transfers and sharply lower social welfare.Annotated pointers to related work can be accessed at http://www2.econ.iastate.edu/tesfatsi/dehome.htm

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 1683.

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Date of creation: 01 Nov 1997
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Publication status: Published in Journal of Economic Growth, November 1997, vol. 2, pp. 305-329
Handle: RePEc:isu:genres:1683
Contact details of provider: Postal:
Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Tesfatsion, Leigh, 1997. "How Economists Can Get Alife," Staff General Research Papers 1685, Iowa State University, Department of Economics.
  2. Manski, C.F., 1991. "Adolescent Econometricians : How Do Youth Infer the Returns to Schooling," Working papers 9110, Wisconsin Madison - Social Systems.
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  8. Francine D. Blau, 1990. "Career Plans and Expectations of Young Women and Men: The Earnings Gap and Labor Force Participation," NBER Working Papers 3445, National Bureau of Economic Research, Inc.
  9. Polachek,Solomon W. & Siebert,W. Stanley, 1993. "The Economics of Earnings," Cambridge Books, Cambridge University Press, number 9780521367288, November.
  10. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
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  13. King, Robert G & Rebelo, Sergio, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S126-50, October.
  14. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  15. Steven H. Sandell & David Shapiro, 1980. "Work Expectations, Human Capital Accumulation, and the Wages of Young Women," Journal of Human Resources, University of Wisconsin Press, vol. 15(3), pages 335-353.
  16. Charles T. Clotfelter & Michael Rothschild, 1993. "Studies of Supply and Demand in Higher Education," NBER Books, National Bureau of Economic Research, Inc, number clot93-1.
  17. Taubman, Paul, 1989. "Role of Parental Income in Educational Attainment," American Economic Review, American Economic Association, vol. 79(2), pages 57-61, May.
  18. Hanushek, Eric A., 2006. "School Resources," Handbook of the Economics of Education, Elsevier.
  19. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-77, September.
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