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The graduate tax when education is a signal

Ismail, Russayani and Myles, Gareth D. (2015) The graduate tax when education is a signal. Research in Economics. ISSN 1090-9443

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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.

Item Type: Article
Uncontrolled Keywords: Higher Education; Uncertainty; Signalling; Graduate Tax
Subjects: H Social Sciences > HJ Public Finance
L Education > LB Theory and practice of education > LB2300 Higher Education
Divisions: School of Economics, Finance & Banking
Depositing User: PM Dr. Russayani Ismail
Date Deposited: 17 Dec 2015 02:51
Last Modified: 14 Apr 2016 04:25
URI: http://repo.uum.edu.my/id/eprint/16419

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