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Redistribution Through Education and Other Mechanisms Under Capital‐Market Imperfections and Uncertainty: A Welfare Effect Analysis
Author(s) -
Mohamed Ben Mimoun
Publication year - 2005
Publication title -
labour
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.403
H-Index - 34
eISSN - 1467-9914
pISSN - 1121-7081
DOI - 10.1111/j.1467-9914.2005.00299.x
Subject(s) - subsidy , economics , welfare , human capital , redistribution (election) , loan , inequity aversion , labour economics , capital market imperfections , redistribution of income and wealth , microeconomics , wage , inequality , general equilibrium theory , public economics , capital market , public good , macroeconomics , finance , market economy , mathematical analysis , mathematics , politics , political science , law
. This paper considers a two‐period model of endogenous human capital formation under the credits‐market imperfection and uncertainty assumptions. We compare in the first part of the paper ex‐ante and ex‐post general‐equilibrium effects of the education subsidy policy to those of the negative income tax and the unskilled wage subsidy regimes. We show that the education subsidy policy raises an efficiency‐inequality trade‐off issue, and therefore it is optimal unless the degree of inequality aversion is relatively high and financing the subsidy is not too distorsive. Public loans are generally claimed to provide a solution for such issue. We explore the implications of implementing the public loan under several schemes in the second part of the paper. We show that combining between a pure public loan and education subsidies provides higher levels of welfare than these two policies taken separately provided that the inequality aversion degree is high. For low degrees of inequality aversion, the pure public loan is the optimal policy.