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Public Subsidy on Education, Welfare, and Wage Inequality in a Small Open Developed Economy: A Two-period Analysis

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  • Chaudhuri, Sarbajit

Abstract

As per the conventional wisdom there should be provision for public assistance for skill acquirement for achieving higher economic growth and improving relative wage inequality in the future. However, empirical observations on certain small OECD countries over the period 2000-2011 tell somewhat a different story. The present paper develops a simple two-sector, specific factor general equilibrium framework with endogenous skill formation and provision for public subsidy on education which shows that these atypical empirical observations are theoretically plausible and can possibly be used in examining the data empirically to uncover the reality. The analysis questions the desirability of the policy on the ground that it may not only aggravate inequality in both present and future periods but also does not necessarily improve intertemporal social welfare.

Suggested Citation

  • Chaudhuri, Sarbajit, 2014. "Public Subsidy on Education, Welfare, and Wage Inequality in a Small Open Developed Economy: A Two-period Analysis," MPRA Paper 60330, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:60330
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    References listed on IDEAS

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    More about this item

    Keywords

    Skill formation; Education Subsidy; Intertemporal Social Welfare; Wage Inequality; General Equilibrium;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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