Income redistribution, educational choice and growth

Income redistribution, educational choice and growth

This thesis contains three theoretical essays on public economics and economics of education. They all focus on different types of redistribution of labor income between individuals and their consequences for income distribution and economic growth.

Effects of Redistribution Policies Who Gains and Who Loses?:

In this paper, I analyze whether redistribution of labor income is reinforced or counteracted by general equilibrium effects on wages for unskilled and skilled workers. Earlier studies have found redistribution to be reinforced. In this paper, the stocks of worker types are endogenized. Redistribution will decrease the stock of skilled workers while the number of unskilled workers will increase. This will lead to a decrease in unskilled workers wage rate and an increase in skilled workers wage rate. Thus, in addition to the wage effect reinforcing the fiscal redistribution showed in earlier studies there is another wage effect counteracting fiscal redistribution. Simulations show that the effect introduced in this paper is likely to outweigh the former effect. Thus, fiscal redistribution is counteracted by the net effect of two counteracting general equilibrium effects.

Enrollment in Higher Education, Ability and Growth:

One suggestion for why the government should subsidize higher education is that a large share of high-skilled workers increases the number and quality of innovations and skills to adapt the production process to the innovations of other workers. This will increase economic growth, which arguably also benefits low-skilled individuals. This paper introduces a heterogeneous consumption value of education depending on family background. If the education decision is not only based on ability but also on such a consumption value, it will no longer be the case that the individuals enrolled in higher education are those with highest ability. I show that whether low-skilled individuals will benefit from contributing to the financing of subsidies to high-skilled individuals will depend on whether the individuals attracted by the subsidy have a sufficiently high ability to significantly increase the growth rate.

Specialization in Higher Education and Economic Growth:

This paper presents a new dimension of higher education, namely the degree of specialization in the education. Labor market transformation may make some individuals opt for a non-specialized education in order to broaden their future career possibilities. This may, however, harm economic growth since the theory of division of labor suggests growth to mainly be driven by specialized workers performing specialized tasks. I show that the government could alter the incentives for specialized education types by targeting the subsidies to the individuals with specialized education types. In this way, growth is increased. At the same time, however, the individuals with broad educations have contributed to the financing of the subsidy without being entitled to it. I show the conditions where this government intervention is Pareto improving and characterize the social optimum of the subsidy.