Educational Attainment and Family Background

Abstract. This paper analyses the effect of aspects of family background, such as family income and parental education, on the educational attainment of persons born from 1967 to 1972. Family income is measured at different periods of a child's life to separate long-term versus short-term effects of family income on educational choices. We find that permanent income matters to a certain degree, and that family income when the child is 0–6 years old is an important explanatory variable for educational attainment later in a child's life. We find that short-term credit constraints have only a small effect on educational attainment. Long-term factors, such as permanent family income and parental education, are much more important for educational attainment than are short-term credit constraints. Public interventions to alleviate the effects of family background should thus also be targeted at a child's early years, the shaping period for the cognitive and non-cognitive skills important later in life.     

Trade,educational costs,and skill acquisition

A model of heterogeneous agents is built to study the effects of trade and educational costs in shaping individual educational outcomes and their aggregate distribution. In a two‐country model, trade has nonmonotonic impacts on individual education choices and causes education and job polarization for both countries. We use this model to evaluate the effects of reductions in educational costs. A reduction in educational cost has no impact on occupational choice in a closed economy. In the open economy, however, it creates an expanded middle class in the home country, whereas the opposite happens in its trading partner.     

Redistributive choices and increasing income inequality: experimental evidence for income as a signal of deservingness

We explore the relation between redistribution choices, source of income, and pre-redistribution inequality. Previous studies find that when income is earned through work there is less support for redistribution than when income is determined by luck. Using a lab experiment, we vary both the income-generating process (luck vs. performance) and the level of inequality (low vs. high). We find that an increase in inequality has less impact on redistribution choices when income is earned through performance than when income results from luck. This result is likely explained by individuals using income differences as a heuristic to infer relative deservingness. If people believe income inequality increases as a result of performance rather than luck, then they are likely to believe the poor deserve to stay poor and the rich deserve to stay rich.     

Efficiency of Screening and Labor Income Inequality

We analyze the importance of information about individual skills for understanding human capital accumulation and income inequality. The paper uses the framework of an overlapping generations economy with endogenous investment in human capital. Agents in each generation differ by random individual ability, or talent, which affects the screening process. The human capital of an agent depends on both his talent and his investment in education. The investment decision is based on a public signal (test outcome), which screens all agents for their talents. We analyze how a better information system, which allows more efficient screening, affects investment in education and, hence, income inequality in equilibrium. As a main result, we find that, typically, less inequality in the distribution of actual incomes can only be achieved at the expense of more inequality in the distribution of income opportunities.     

On the optimal income taxation and educational decisions

In this paper we consider three different ways of incorporating individuals' educational choices into the design of optimal income tax policy. In one variant of the model (case 2), where an individual chooses his education before knowing his ability and after that education makes his labour supply decisions on the basis of known ability, it is shown that qualitative features of the optimal income tax schedule are not similar to those of the standard optimal income tax model. The marginal tax rate is generally not zero at the endpoints of distribution but is most likely negative. Using numerical methods, some interesting features quite different from earlier numerical results are revealed, especially in the second case. For example, the marginal tax rate is non-decreasing in income for a substantial income range. In addition, our calculations support neither the traditional views on the egalitarian nature of equal education nor its disadvantageous consequences in the perfect utilitarian society.     

Estimating returns to education in urban China: Evidence from a natural experiment in schooling reform

Whereas there is a large literature on estimating returns to education in China, few studies have attempted to address the endogeneity of schooling choices. We explore the arguably exogenous changes in the duration of secondary education as the instrumental variable to identify the causal effect of years of schooling in urban China. The schooling years in most middle schools were reduced from three years to two years during the Cultural Revolution. The Chinese government gradually restored the middle school education years from two years to three years after 1978. An important feature of these policy changes is their large geographic variations. From local gazetteers, we find out the exact years when education years were reduced from three to two and when they were restored from two to three. Using the exogenous variation in schooling reform, we estimate that the returns to education are 12.7% for both monthly wage and disposable income.     

Is the median voter decisive? Evidence from referenda voting patterns

This paper examines whether the voter with the median income is decisive in local spending decisions. Previous tests have relied on cross-sectional data while we make use of a pair of California referenda to estimate a first difference specification. The referenda proposed to lower the required vote share for passing local educational bonding initiatives from 67 to 50% and 67 to 55%, respectively. We find that voters rationally consider future public service decisions when deciding how to vote on voting rules. However, the empirical evidence strongly suggests that an income percentile below the median is decisive for majority voting rules, especially in communities that have a large share of high-income voters with attributes that suggest low demand for public services. Based on a model that explicitly recognizes that each community contains voters with both high and low demand for public school spending, we also find that an increase in the share of low demand voters is associated with a lower decisive voter income percentile for the high demand group. This two type model implies that our low demand types (individuals over age 45 with no children) have demands that are 45% lower than other voters. Collectively, these findings are consistent with high-income voters with weak preferences for public educational services voting with the poor against increases in public spending on education.     

Tax evasion and Ricardian equivalence

This paper studies whether the Ricardian equivalence holds in a context with tax evasion. In such a context, the degree of uncertainty becomes endogenous since agents control the distribution of their future income through their income report. We find that Ricardian equivalence holds when proportional fines are imposed on evaded taxes, but does not hold when the fines are on the amount of unreported income. We also show that it is possible to explain the empirical negative relation between tax rates and declared income when the path of government spending remains unchanged.     

Italy’s demographic trap: Voting for childcare subsidies and fertility outcomes

In this paper we study how population aging impacts the age distribution of the voting electorate and voters’ choices over childcare subsidies. We build a computable general equilibrium framework populated by heterogeneous agents who, over the course of their life-cycle, make endogenous and age-dependent fertility choices. The model is calibrated to match economic and population outcomes of the Italian economy. Child support favors young and fertile cohorts but can also impact all population subgroups through changes in prices, income taxation and population growth. A probabilistic voting model is used to measure voting outcomes over a range of childcare subsidy levels and tax policies. Our findings show that childcare subsidies have a positive impact on the total fertility rate and are welfare improving when financed with both capital and labor income taxation and in combination with lower pension contribution rates. A 10 percent increase in the level of subsidies can increase the population growth rate by an average of 0.47–0.70 percentage points. We find that voting choices of different population subgroups, while depending on the tax used to finance new expenditure, lead to lower levels of childcare subsidies, lower fertility rates and to a demographic ‘trap’.     

The Design of Optimal Education Policies

This paper studies the education policy chosen by a utilitarian government. In the model, households differ in their income and in their children&'s ability; income is observed by the government, but ability is private information. Households can use private education, but cannot borrow to finance it. The government can finance education with income tax, but at the cost of blunting the individuals' incentive to exert labour market effort. The optimal education policy we derive is elitist: it increases the spread between the educational achievement of the bright and the less bright individuals, compared to private provision. It is also such that the education received by less bright individuals depends positively on their parental income. Finally, the optimal education policy is input regressive, in the sense of Arrow (1971, Quarterly Journal of Economics, 38, 175–208): households with higher income and brighter children contribute less in tuition fees towards the cost of the education system than households with lower income and less bright children.     

Education for all. A welfare-improving course for Africa?

In this paper, we argue that the case for universal compulsory education for sub-Saharan Africa might have been overstated. We capture the African situation through a heterogeneous-agent model, in which high costs of education relative to income and the skill premium cause the economy to stagnate in a low steady state with minimal educational attainment. We calibrate the model to available data from the sub-Saharan African countries to study education policies. We find that a tax and in-kind subsidy scheme that effectively redistributes resources from households with lower ability children to those with higher ability children outperforms enrollment-maximizing policies such as the abolition of child labor and compulsory education.     

Parental Income and Continuing Education of Second Generation Immigrants in Sweden

Understanding the economic integration of minority ethnic communities requires an analysis of the educational process. This paper examines second‐generation immigrant youths’ educational attainments in comparison with those of similarly aged native Swedes. Binomial‐logit, grouped‐regression and multinomial‐logit models are applied to longitudinal data, 1991–1996. The results give evidence for socioeconomic determinants of post‐compulsory education and for parental influence on educational choices. Parental income affects second‐generation immigrants’ post‐compulsory education and Swedes’ choice of level of education. In general, the stronger the labour market positions of the parents, the higher the probability of the children continuing education. It is also found that the geographical origin of second‐generation immigrants matter, with youths of Asian origin having a higher probability of continuing their education. We suggest policy changes on different levels based on the evidence of the paper, as short‐run, long‐run and in general.     

Status, affluence, and inequality: Rank-based comparisons in games of status

We examine the effects of changes in the income distribution in an economy where agents' utility depends both on consumption and on their rank in the distribution of conspicuous consumption. We introduce a new methodology to compare the behavior of agents that occupy the same rank in the two different income distributions but typically have different levels of incomes. Here, an increase in incomes of the least endowed improves their welfare, yet it also increases social competition, making those in the middle to be worse off—even if they have higher incomes as well. As social competition can be lowered by spreading agents apart in income space, we find that an increase in incomes for all, augmented by (weakly) increased income dispersion, constitutes a sufficient condition for Pareto-improvement. We also show that one can have an increase both in income and relative position but still be worse off.     

Public and Private Education in an Integrated Europe: Studying to Migrate and Teaching to Stay?

This paper investigates public and private choices between internationally applicable and country‐specific education when graduates are mobile. Human capital depends on innate skills and study effort with either type of education. It is shown that national governments provide too few students with internationally applicable education, and too many with country‐specific education. This effect is mitigated, but not entirely eliminated, by the introduction of a graduate tax, according to which graduates are required to pay part of their taxes to the country where they received their education, regardless of residence. However, private educational choices are socially optimal with suitably differentiated tuition fees.     

Optimal human capital policies under the endogenous choice of educational types

This study examines optimal human capital policies under nonlinear labor and capital income taxes in the presence of consumption value of education in a two‐period setting. We show that when individuals can choose educational types differing by the relative importance of consumption value and production value, education subsidies for low‐type individuals should not equal an efficient level that offsets distortions induced by nonlinear taxes on labor and capital income. Our findings imply that education policy does not restore efficiency, or the Diamond–Mirrlees production efficiency theorem fails. Moreover, capital income taxation is optimal, which means that the Atkinson–Stiglitz theorem breaks down.     

Education and Income Inequality: New Evidence From Cross-Country Data

This paper presents empirical evidence on how education is related to income distribution in a panel data set covering a broad range of countries for the period between 1960 and 1990. The findings indicate that educational factors—higher educational attainment and more equal distribution of education —play a significant role in making income distribution more equal. The results also confirm the Kuznets inverted–U curve for the relationship between income level and income inequality. We also find that government social expenditure contributes to more equal distribution of income. However, a significant proportion of cross–country variation in income inequality remains unexplained.     

公共教育、社会保障与收入分布

本文使用一个世代交叠模型揭示了公共教育与社会保障调节收入分布的作用机制。研究发现,公共教育能够有效地缩小家庭教育投资差距,从而降低收入差异;社会保障则通过减少低收入家庭的劳动供给、增加其有效家庭教育时间来降低收入差异。本文的数值模拟结果显示,在同样的支出水平下公共教育调节收入差异的能力比社会保障更强。并且当存在财政预算约束时,从降低收入差异的角度来看,若财政预算规模较低则应当将资金优先用于公共教育;若财政预算规模较高则应当在公共教育与社会保障之间保持平衡。     

Taste-homogeneity of optimal jurisdictions in a Tiebout economy with crowding types and endogenous educational investment choices

We examine a local public goods economy with differentiated crowding. The main innovation is that we assume that the crowding effects of agents are a result of choices that agents make. For example, agents may be crowded (positively or negatively) by the skills that other members of their jurisdiction possess and these skills may be acquired through utility maximizing educational investment choices made in response to equilibrium wages and educational costs. In such an environment, we show that taste-homogeneous jurisdictions are optimal. This contrasts with results for both the standard differentiated crowding model and the crowding types model. We also show that the core and equilibrium are equivalent, and that decentralization is possible through anonymous prices having a structure similar to cost–share equilibrium prices.     

Rational truth-avoidance and self-esteem

Abstract .  We assume that people have beliefs about their abilities that generate self-esteem, and that self-esteem is valued intrinsically. Individuals face two choices; one of which strictly dominates the other in a pecuniary sense, but necessarily involves gathering information concerning their ability. We lay out the circumstances under which an individual may find it rational to reject the dominant choice, an act that, in psychology is described as avoiding the situation . We then go on to show that the incentive to avoid the truth is increasing in income/wealth and decreasing in self-esteem, the perceived accuracy of one's self-assessment, and the role that luck plays in generating opportunities.     

Income inequality, consumption, and social-status seeking

Using the Chinese Urban Household Survey data between 1997 and 2006, we find that income inequality has a negative (positive) effect on household consumption net of education expenditures (savings) even after we control for household income. We argue that people save to improve their social status when social status is associated with pecuniary and non-pecuniary benefits. Rising income inequality can strengthen the incentives of status-seeking savings by increasing the benefit of improving status, and by enlarging the wealth level required for status upgrading. We also find that the negative effect of income inequality on consumption is stronger for poorer and younger people and that income inequality stimulates more education investment, which are consistent with the status-seeking hypothesis.