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Education and Efficient Redistribution

Author

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  • Robert A.J. Dur

    (Erasmus University Rotterdam)

  • Coen N. Teulings

    (SEO, University of Amsterdam)

Abstract

Should education be subsidized for the purpose ofredistribution? The usual argument against subsidies to education abovethe primary level is that the rich take up most education, soa subsidy would increase inequality. We show that there is acounteracting effect: an increase in the stock of human capitalreduces the return to human capital and, therefore, pre-tax income inequality decreases.We consider a Walrasian world withperfect capital and insurance markets. Hence, in the absence ofa strive for redistribution, the market generates the efficient levelof investment in human capital. When there is a demand forredistribution, the general equilibrium effects on relative wagesmight make a subsidy to education an ingredient of a second-bestoptimal redistribution policy. Stimulating human capitalformation results in a compression of the wage distribution, and hencereduces the need for distortionary redistributive taxation. Wealso study the political viability of education subsidies.

Suggested Citation

  • Robert A.J. Dur & Coen N. Teulings, 2001. "Education and Efficient Redistribution," Tinbergen Institute Discussion Papers 01-090/3, Tinbergen Institute, revised 12 Jun 2003.
  • Handle: RePEc:tin:wpaper:20010090
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    Cited by:

    1. Merzyn, Wolfram & Ursprung, Heinrich W., 2005. "Voter support for privatizing education: evidence on self-interest and ideology," European Journal of Political Economy, Elsevier, vol. 21(1), pages 33-58, March.
    2. Bas Jacobs, 2013. "Optimal redistributive tax and education policies in general equilibrium," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(2), pages 312-337, April.
    3. Bas Jacobs, 2002. "An investigation of education finance reform; graduate taxes and income contingent loans in the Netherlands," CPB Discussion Paper 9, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Asplund, Rita, 2004. "A Macroeconomic Perspective on Education and Inequality," Discussion Papers 906, The Research Institute of the Finnish Economy.
    5. Bas Jacobs, 2004. "The Lost Race between Schooling and Technology," De Economist, Springer, vol. 152(1), pages 47-78, March.
    6. Bas Jacobs, 2005. "Optimal Income Taxation with Endogenous Human Capital," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(2), pages 295-315, May.
    7. Bas Jacobs & A. Bovenberg, 2010. "Human capital and optimal positive taxation of capital income," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(5), pages 451-478, October.
    8. Schneider, Andrea, 2010. "Redistributive taxation vs. education subsidies: Fostering equality and social mobility in an intergenerational model," Economics of Education Review, Elsevier, vol. 29(4), pages 597-605, August.
    9. Lans Bovenberg, A. & Jacobs, Bas, 2005. "Redistribution and education subsidies are Siamese twins," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2005-2035, December.
    10. Chaitali Sinha, 2014. "Human Capital and Public Policy," South Asian Journal of Macroeconomics and Public Finance, , vol. 3(1), pages 79-125, June.

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