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How Responsive Is Investment in Schooling to Changes in Redistributive Policies and in Returns?
Author(s) -
Abramitzky Ran,
Lavy Victor
Publication year - 2014
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta10763
Subject(s) - redistribution (election) , economics , exploit , investment (military) , rate of return , labour economics , productivity , demographic economics , macroeconomics , political science , finance , law , computer security , politics , computer science
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 high school education and, in the long run, also in post‐secondary schooling. We further show that the effect is mainly driven by students in kibbutzim that reformed to a larger degree. Our findings support the prediction that education is highly responsive to changes in the redistribution policy.