Summary
An intergenerational model of wealth distribution is the basis for an analysis of educational policy: specifically grants, loans and subsidies. Parents endow their children with education and/or cash bequest; the child’s earned income and the cash bequest may be taxed. For given tax schedules and a given distribution of abilities in the population, the distribution of wealth eventually approaches an equilibrium. Initially we characterise the optimal tax schedules, using a welfare function based on the long run equilibrium wealth distribution. We then enquire whether grants, loans or subsidies would form part of an optimal distributional policy. It turns out that educational grants are desirable if they are the only additional instrument available, but loans appear to be superior, although the model needs further development to analyse them fully: the model is formulated for subsidies, but not solved in this paper.
We are grateful to J. Mirrless and C. Pissarides, as well as other participants at the U.K./U.S. Conference on Collective Choice in Education held in December 1979, for valuable comments on the previous version of this paper. As usual, we accept responsibility for remaining errors and omissions.
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© 1981 Martinus Nijhoff Publishers, The Hague
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Hare, P.G., Ulph, D.T. (1981). Imperfect capital markets and the public provision of education. In: Bowman, M.J. (eds) Collective Choice in Education. Studies in Public Choice. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-7398-5_10
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DOI: https://doi.org/10.1007/978-94-009-7398-5_10
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