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To educate or not to educate: Impact of public policies in developing countries

Hamid Beladi, Chaitali Sinha () and Saibal Kar ()

Economic Modelling, 2016, vol. 56, issue C, 94-101

Abstract: It is well-known in the empirical literature that present-oriented individuals are less likely to go to college as compared to forward looking individuals. There is compelling evidence of a high percentage of dropouts from high schools in poor countries. The endogenous sorting of homogeneous workers into skilled and unskilled types might be the outcome of exposure to income risk and an individual's aversion to risk. We obtain the critical risk aversion associated with income levels above which no individual chooses education. Broad-based economic policies may have perverse impact on educational attainments of individuals. We argue that such an analysis has been largely neglected in related studies. This outcome may also be undesirable from the perspective of a social planner. To address this, we suggest a sector-specific tax-subsidy scheme as a corrective instrument of public policy.

Keywords: Risk-augmented Mincer equation; Public policy; Tax; Developing countries; Welfare (search for similar items in EconPapers)
JEL-codes: H52 I24 O15 O23 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1016/j.econmod.2016.03.016

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