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Why Invest in Your Neighbor? Social Contract on Educational Investment

Author

Listed:
  • Panu Poutvaara
  • Vesa Kanniainen
Abstract
It may be in the interestof low-ability individuals to subsidize the education of high-abilityindividuals. The sufficient conditions are surprisingly mild:positive externalities in education and complementarity in productionbetween human capital and labor supplied by the low-ability individuals.However, tax competition and the free mobility of the educatedgive rise to time-inconsistency and free-riding problems whichrender such a social contract infeasible and result in a suboptimallylow investment in education. Copyright Kluwer Academic Publishers 2000

Suggested Citation

  • Panu Poutvaara & Vesa Kanniainen, 2000. "Why Invest in Your Neighbor? Social Contract on Educational Investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(4), pages 547-562, August.
    • Handle: RePEc:kap:itaxpf:v:7:y:2000:i:4:p:547-562
    DOI: 10.1023/A:1008745708377
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    References listed on IDEAS

    as
    1. Rehme, G., 1999. "Public Policies and Education, Economic Growth and Income Distribution," Economics Working Papers eco99/14, European University Institute.
    2. Bhagwati, Jagdish N. & Hamada, Koichi, 1982. "Tax policy in the presence of emigration," Journal of Public Economics, Elsevier, vol. 18(3), pages 291-317, August.
    3. Hindriks, Jean, 1999. "The consequences of labour mobility for redistribution: tax vs. transfer competition," Journal of Public Economics, Elsevier, vol. 74(2), pages 215-234, November.
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    5. Panu Poutvaara, 2000. "Education, Mobility of Labour and Tax Competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(6), pages 699-719, December.
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    7. David E. Wildasin, 2000. "Labor-Market Integration, Investment in Risky Human Capital, and Fiscal Competition," American Economic Review, American Economic Association, vol. 90(1), pages 73-95, March.
    8. Creedy, John & Francois, Patrick, 1990. "Financing higher education and majority voting," Journal of Public Economics, Elsevier, vol. 43(2), pages 181-200, November.
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    10. Chapman, Bruce, 1997. "Conceptual Issues and the Australian Experience with Income Contingent Charges for Higher Education," Economic Journal, Royal Economic Society, vol. 107(442), pages 738-751, May.
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    More about this item

    Keywords

    externalities in education; complementarity; social contract; tax competition;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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