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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://www.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. Leigh TESFATSION, 1995. "How Economists Can Get Alife," Economic Report 37, Iowa State University Department of Economics.
  2. 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.
  3. 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.
  4. repec:att:wimass:9110 is not listed on IDEAS
  5. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  6. King, R.G. & Rebelo, S., 1988. "Public Policy And Economic Growth: Developing Neoclassical Implications," RCER Working Papers 225, University of Rochester - Center for Economic Research (RCER).
  7. 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.
  8. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 755-76, October.
  9. Taubman, Paul, 1989. "Role of Parental Income in Educational Attainment," American Economic Review, American Economic Association, vol. 79(2), pages 57-61, May.
  10. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  11. Zimmerman, David J, 1992. "Regression toward Mediocrity in Economic Stature," American Economic Review, American Economic Association, vol. 82(3), pages 409-29, June.
  12. Galor, Oded & Tsiddon, Daniel, 1997. " The Distribution of Human Capital and Economic Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 93-124, March.
  13. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  14. Case, A.C. & Katz, L.F., 1991. "The Company You Keep: The Effects Of Family And Neighborhood On Disadvantaged Younths," Harvard Institute of Economic Research Working Papers 1555, Harvard - Institute of Economic Research.
  15. Durlauf, S.N., 1992. "A Theory of Persistent Income Inequality," Papers 47, Stanford - Institute for Thoretical Economics.
  16. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
  17. 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, October.
  18. Hanushek, Eric A., 2006. "School Resources," Handbook of the Economics of Education, Elsevier.
  19. Charles F. Manski, 1993. "Adolescent Econometricians: How Do Youth Infer the Returns to Schooling?," NBER Chapters, in: Studies of Supply and Demand in Higher Education, pages 43-60 National Bureau of Economic Research, Inc.
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