The graduate tax when education is a signal
This paper investigates the effects of a graduate tax when the return to education is uncertain and wages are determined through equilibrium in a labor market with signalling.The consequence of uncertainty is that both ability and initial wealth matter for educational choice.Compared to a constraine...
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| Main Authors: | , |
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| Format: | Article |
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Elsevier Ltd.
2015
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| Subjects: | |
| Online Access: | http://repo.uum.edu.my/16419/ http://doi.org/10.1016/j.rie.2015.07.008 |
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| Summary: | This paper investigates the effects of a graduate tax when the return to education is uncertain and wages are determined through equilibrium in a labor market with signalling.The consequence of uncertainty is that both ability and initial wealth matter for educational choice.Compared to a constrained first-best the market outcome with uncertainty and signalling results in an inefficiently high number of people entering higher education.Due to the positive wealth effect over-entry is proportionately greater for high-wealth individuals.The graduate tax reduces entry into education so enhances efficiency. However, it has undesirable distributional consequences: low-wealth individuals are deterred from entering education but high-wealth are encouraged.In this respect, the graduate tax has clear failings as a method of financing higher education. |
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