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Investment in Education and the Time Inconsistency of Redistributive Tax Policy

Robin Boadway, Nicolas Marceau and Maurice Marchand
Economica
New Series, Vol. 63, No. 250 (May, 1996), pp. 171-189
DOI: 10.2307/2554758
Stable URL: http://www.jstor.org/stable/2554758
Page Count: 19
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Investment in Education and the Time Inconsistency of Redistributive Tax Policy
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Abstract

Time inconsistency of tax policy is shown to arise in a setting where households differ in their ability to accumulate wealth and where the government has redistributional objectives. It is assumed that wealth accumulation takes the form of human capital acquired through education. The government is precluded from redistributing to a first-best optimum by a self-selection constraint. The second-best is shown to be time-inconsistent. In the time-consistent optimum, households underinvest in education. An argument can be made for public intervention in the provision of education.

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