NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Redistribution through Education and Other Transfer Mechanisms

Eric Hanushek, Charles Ka Yui Leung, Kuzey Yilmaz

NBER Working Paper No. 8588
Issued in November 2001
NBER Program(s):CH, LS, PE, ED

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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Document Object Identifier (DOI): 10.3386/w8588

Published: 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. citation courtesy of

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