Why Invest in Your Neighbor? Social Contract on Educational Investment |
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Authors: | Panu Poutvaara Vesa Kanniainen |
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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. |
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Keywords: | externalities in education complementarity social contract tax competition |
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