Working Paper: NBER ID: w8588
Authors: Eric Hanushek; Charles Ka Yui Leung; Kuzey Yilmaz
Abstract: Educational subsidies are frequently justified as a method of altering the income distribution. It is thus natural to compare education to other tax-transfer schemes designed to achieve distributional objectives. While equity-efficiency trade-offs are frequently discussed, they are rarely explicitly treated. This paper creates a general equilibrium model of school attendance, labor supply, wage determination, and aggregate production, which is used to compare alternative redistribution devices in terms of both deadweight loss and distributional outcomes. A wage subidy generally dominates tuition subsidies in ex ante (or 'opportunity') calculations, but this reverses in ex post (or 'realized') calculations. Both are generally superior to a negative income tax. With externalities in production, however, there is an unambiguous role for governmental subsidy of education, because it both raises GDP and creates a more equal income distribution.
Keywords: education; redistribution; economic output; subsidies
JEL Codes: D6; H2; I2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| educational subsidies (I22) | income distribution (D31) |
| educational investments (I26) | national economy (O51) |
| educational subsidies (I22) | societal welfare (I38) |
| wage subsidies (J38) | aggregate utility (E10) |
| wage subsidies (J38) | equity in ex ante distribution of utility (D63) |
| tuition subsidies (I22) | equity in ex ante distribution of utility (D63) |
| educational subsidies (I22) | GDP (E20) |
| government investment in education (H52) | economic performance (P17) |
| educational subsidies (I22) | equitable income distribution (D63) |