A general model of community formation and human capital accumulation with social spillovers and decentralized school funding is used to analyze the causes of economic segregation and its consequences for equity and efficiency. Significant polarization arises from minor differences in endowments, preferences, or access to capital markets. This makes income inequality more persistent across generations but the same need not be true for wealth. Equilibrium stratification tends to be excessive, resulting in low aggregate surplus. Whether state equalization of school resources can remedy these problems hinges on how purchased, social, and family inputs interact in education and in mobility decisions.
Public provision of a service coexists with private market provision. The quality of public provision is determined by majority vote. Preferences are not single peaked owing to the presence of private alternatives. We identify two cases. In one, majority voting equilibrium always exists and the median-income voter is pivotal. In the other, a necessary condition for equilibrium indentifies the pivotal voter who must have income below the median. When equilibrium exists, a coalition of middle-income households who consume the public alternative will be opposed by a coalition of rich and poor households, with the rich choosing private consumption.
To develop the understanding of public sector growth, this paper addresses the determinants of one important component of public spending, public education. Disaggregation of school expenditure allows for an analysis of how different decisions at the national and the local government level contribute to increased spending. A bargaining model between the central government and a teacher union is combined with a demand model of educational services at the local government level. Political characteristics are assumed to influence the central government bargaining strength over teacher wages and working hours. The model is implemented using a database for economic, political and school factors in Norway during 1880–1990. Political strength, measured as stable government and low party fragmentation of parliament, is shown to be important to hold down teacher employment. Socialist orientation of the government tends to drive up both teacher wages and employment. The inelastic response of local governments to centrally determined cost factors imply that they are not able to hold back spending growth following higher costs.
This paper investigates the implications of social rewards on the allocation of talent in society and consequently on the process of economic growth. The authors consider two sources of heterogeneity among workers: nonwage income and innate ability. A greater emphasis on status may induce the 'wrong' individuals, that is, those with low ability and high wealth, to acquire schooling, causing workers with high ability and low wealth to leave the growth-enhancing industries. This crowding-out effect, taken alone, discourages growth. Growth may be enhanced by a more egalitarian distribution of wealth, which reduces the demand for status.
This paper analyzes the political economy of education, acquired through a combination of compulsory public schooling and supplementary private education, in the context of an OLG model in which growth is driven by the accumulation of human capital. The level of public schooling, fully funded by a proportional income tax, is determined by majority vote, while supplementary private education is purchased individually. We show existence of a political-economic equilibrium, and examine its characteristics, describing the evolution of the public-private mix over time: for moderate parameter values the share of public schooling increases as incomes rise, and inequality falls.
We use an OLG model to examine democratic choice between two models of government support for education: subsidies for privately purchased education and free uniform public provision. We find little conflict between democracy and growth: the same factors that generate popular support for subsidization over free uniform provision - large external benefits, a large excess burden and little inequality - also favor its relative growth performance.
This paper analyzes the implications of tax policy for the accumulation of human and physical capital and for the overall productivity level of the economy. A comprehensive income tax, applying to both labour income and capital income, discriminates against investments in human capital relative to investments in physical capital. Hence, it has an adverse impact on human capital accumulation. Taking into account a positive external effect of investments in human capital on overall productivity, the adverse effect of income taxation on human capital investments is significantly magnified.
Good review of the reasons for government intervention in the market for education.
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