Why Invest in Your Neighbor? Social Contract on Educational Investment
- Cite this article as:
- Poutvaara, P. & Kanniainen, V. International Tax and Public Finance (2000) 7: 547. doi:10.1023/A:1008745708377
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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.