Redistributive Taxation and Public Education

This paper examines the relative effectiveness of publicly provided ‘white collar’ professional (university) education versus ‘blue collar’ vocational training in achieving the government's redistributive goals. Although professional education directly benefits high‐skill high‐income workers and vocational training directly benefits low‐skill low‐income workers, we show that either provision of more professional education or less vocational training than in the first‐best allocation is optimal along the second‐best Paretian frontier since this facilitates incentive compatibility in labor supply decisions. Accordingly, the observation that public higher education expenditures in most countries favor universities is not necessarily inconsistent with an optimal redistributive program.