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

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  • Orazem, Peter
  • Tesfatsion, Leigh S.

Abstract

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

Suggested Citation

  • Orazem, Peter & Tesfatsion, Leigh S., 1997. "Macrodynamic Implications of Income Transfer Policies for Human Capital Investment and School Effort," Staff General Research Papers Archive 1683, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:1683
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    References listed on IDEAS

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    Cited by:

    1. Zilcha, Itzhak, 2003. "Intergenerational transfers, production and income distribution," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 489-513, March.
    2. Drees, Burkhard & Eckwert, Bernhard, 2010. "Implications of more precise information for technological development and economic welfare," Journal of Economic Dynamics and Control, Elsevier, vol. 34(2), pages 266-279, February.
    3. Jean‐Marie Viaene & Itzhak Zilcha, 2009. "Human Capital and Inequality Dynamics: The Role of Education Technology," Economica, London School of Economics and Political Science, vol. 76(304), pages 760-778, October.
    4. Bala, Venkatesh & Sorger, Gerhard, 2001. "A Spatial-Temporal Model of Human Capital Accumulation," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 153-179, January.
    5. Limor Hatsor, 2014. "Allocation of Resources in Educational Production: The Budget Puzzle," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(6), pages 854-883, December.
    6. repec:isu:genstf:1997010108000012996 is not listed on IDEAS
    7. Bandyopadhyay, Debasis & Basu, Parantap, 1999. "The Growth-Inequality Relationship in A Model with Discrete Occupational Choice and Redistributive Tax," Working Papers 213, Department of Economics, The University of Auckland.
    8. Wozny Lukasz & Growiec Jakub, 2012. "Intergenerational Interactions in Human Capital Accumulation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-47, June.
    9. Bernhard Eckwert & Itzhak Zilcha, 2012. "Private Investment in Higher Education: Comparing Alternative Funding Schemes," Economica, London School of Economics and Political Science, vol. 79(313), pages 76-96, January.
    10. Bernhard Eckwert & Itzhak Zilcha, 2007. "The Effect of Better Information on Income Inequality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(2), pages 287-307, August.
    11. Hatsor, Limor, 2012. "Occupational choice: Teacher quality versus teacher quantity," Labour Economics, Elsevier, vol. 19(4), pages 608-623.
    12. Leonid Azarnert, 2010. "Juvenile imprisonment and human capital investment," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 8(1), pages 23-33, March.
    13. Koichi Futagami & Mitsuyoshi Yanagihara, 2008. "Private And Public Education: Human Capital Accumulation Under Parental Teaching," The Japanese Economic Review, Japanese Economic Association, vol. 59(3), pages 275-291, September.
    14. Cooper, Suzanne J, 1998. "A Positive Theory of Income Redistribution," Journal of Economic Growth, Springer, vol. 3(2), pages 171-195, June.
    15. Michael Neugart & Jan Tuinstra, 2003. "Endogenous fluctuations in the demand for education," Journal of Evolutionary Economics, Springer, vol. 13(1), pages 29-51, February.
    16. Haris Munandar, 2008. "Heterogeneous Agents, Human Capital Formation and International Income Inequality," Tinbergen Institute Discussion Papers 08-015/2, Tinbergen Institute.
    17. Efraín Rodríguez Lozano, 2011. "¿Barreras Lingüísticas en la Educación?: La Influencia de la Lengua Materna en la Deserción Escolar," Documentos de Trabajo / Working Papers 2011-324, Departamento de Economía - Pontificia Universidad Católica del Perú.
    18. Viaene, Jean-Marie & Zilcha, Itzhak, 2002. "Public education under capital mobility," Journal of Economic Dynamics and Control, Elsevier, vol. 26(12), pages 2005-2036, October.
    19. Ben Mimoun Mohamed, 2005. "Redistribution Through Education and Other Mechanisms Under Capital‐Market Imperfections and Uncertainty: A Welfare Effect Analysis," LABOUR, CEIS, vol. 19(2), pages 191-236, June.
    20. Nicolas Bauduin & Joël Hellier, 2006. "Skill Dynamics, Inequality and Social Policies," Working Papers 34, ECINEQ, Society for the Study of Economic Inequality.
    21. Azarnert, L.V.Leonid V., 2004. "Redistribution, fertility, and growth: The effect of the opportunities abroad," European Economic Review, Elsevier, vol. 48(4), pages 785-795, August.
    22. Leonid Azarnert, 2006. "Free Education: For Whom, Where and When?," DEGIT Conference Papers c011_024, DEGIT, Dynamics, Economic Growth, and International Trade.
    23. Lisardo Erman & Daniel Marcel Kaat, 2019. "Inequality and growth: industry-level evidence," Journal of Economic Growth, Springer, vol. 24(3), pages 283-308, September.
    24. Jean-Marie Viaene & Itzhak Zilcha, 2000. "Optimal Education with Mobile Capital. An OLG Approach (new title: Optimal Public Education under Capital Mobility)," CESifo Working Paper Series 289, CESifo.

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