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Redistribution through Education and Other Transfer Mechanisms

  • Eric Hanushek
  • Charles Ka Yui Leung
  • Kuzey Yilmaz

Educational subsidies are frequently justified as a method of altering the income distribution. It is thus natural to compare education to other tax-transfer schemes designed to achieve distributional objectives. While equity-efficiency trade-offs are frequently discussed, they are rarely explicitly treated. This paper creates a general equilibrium model of school attendance, labor supply, wage determination, and aggregate production, which is used to compare alternative redistribution devices in terms of both deadweight loss and distributional outcomes. A wage subidy generally dominates tuition subsidies in ex ante (or 'opportunity') calculations, but this reverses in ex post (or 'realized') calculations. Both are generally superior to a negative income tax. With externalities in production, however, there is an unambiguous role for governmental subsidy of education, because it both raises GDP and creates a more equal income distribution.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8588.

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Date of creation: Nov 2001
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Publication status: published as Hanushek, Eric A., Charles Ka Yui Leung and Kuzey Yilmaz. "Redistribution Through Education And Other Transfer Mechanisms," Journal of Monetary Economics, 2003, v50(8,Nov), 1719-1750.
Handle: RePEc:nbr:nberwo:8588
Note: CH LS PE ED
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