Working Paper: NBER ID: w3994
Authors: Raquel Fernandez; Richard Rogerson
Abstract: The non-existence of credit markets implies that initial income is a determinant of who actually obtains an education. We consider the outcome of a process in which income is taxed to provide subsidies for education. and taxes are chosen by majority voting. We characterize the outcome as a function of both the level and the distribution of income in the economy. In particular we derive conditions under which middle income individuals ally themselves with upper income individuals at the expense of lower income individuals, and vice versa. The analysis determines the relationship between human capital accumulation and distribution of income.
Keywords: Human Capital; Income Distribution; Educational Subsidies
JEL Codes: I22; D72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| average income of the economy (E25) | degree of education subsidization (I24) |
| cost of education (I22) | degree of education subsidization (I24) |
| degree of education subsidization (I24) | equilibrium tax rate (H21) |
| average income of the economy (E25) | equilibrium tax rate (H21) |
| middle-income individuals (D31) | educational subsidy policy outcomes (H52) |
| lower-income individuals + higher-income individuals (I24) | middle class (I31) |