Working Paper: CEPR ID: DP2657
Authors: Fredrik Andersson; Kai A. Konrad
Abstract: This Paper compares education investment in closed and open economies without government and with a benevolent government. Closed economies suffer from a hold-up problem of excessive redistribution, and governments use education policy as a second-best tool. Globalization that increases labour mobility reduces governments' incentives to provide subsidized education and increases private individuals' incentives for investment in their human capital. Globalization can improve welfare, and even restore full efficiency. Governments' scope for redistribution ? which is a substitute for private income insurance ? is reduced, and whether efficiency is restored depends on how private insurance markets react to the change in redistribution policy.
Keywords: commitment; education; effort; globalization; migration; time consistent income taxation
JEL Codes: H21; H23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government tax policy (H29) | Human capital investment decisions (J24) |
| Government tax policy (H29) | Time-consistency problem of government policies (E61) |
| Globalization (F60) | Decrease in government incentives to provide education subsidies (H52) |
| Globalization (F60) | Individual investment in human capital (J24) |