How Responsive is Investment in Schooling to Changes in Redistribution Policies and in Returns

Ran Abramitzky, Victor Lavy

NBER Working Paper No. 17093
Issued in May 2011
NBER Program(s):   CH   DAE   ED   LS   PE

This paper uses an unusual pay reform to test the responsiveness of investment in schooling to changes in redistribution schemes that increase the rate of return to education. We exploit an episode where different Israeli kibbutzim shifted from equal sharing to productivity-based wages in different years and find that students in kibbutzim that reformed earlier invested more in education. This effect is stronger for males and is mainly driven by students whose parents have lower levels of education. Our findings support the prediction that education is highly responsive to changes in the redistribution policy, especially for students from weaker backgrounds.

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This paper was revised on December 5, 2011

Acknowledgments

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