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The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Lambertini, Luisa / Nimark, Kristoffer / Schwartzman, Felipe / Wang, Pengfei

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Redistributive policies and technology diffusion

Manuela MagalhãesORCID iD: http://orcid.org/0000-0002-6337-0928 / Tiago Neves SequeiraORCID iD: http://orcid.org/0000-0002-5501-1562
Published Online: 2018-05-18 | DOI: https://doi.org/10.1515/bejm-2017-0227


In this paper we examine the effects of redistributive policies in a transition economy in the presence of technology diffusion on labor and education decisions, and skill-premium. We set a micro-founded dynamic general equilibrium model with a skill-biased technology diffusion, elastic leisure/labor decisions, and investments in education. The economy is populated by two types of households – skilled and unskilled, which become skilled through investments in education. We highlight the importance of the general equilibrium effects of redistributive policies over the leisure/labor and education decisions and wages. Lump-sum transfers reduce investments in education, raising the share of unskilled individuals, decreasing their wage and, raising the skill-premium. Education subsidies raise investments in education, the skills supply, and unskilled wages and reduce the skill-premium during the slowdown of the technology diffusion.

Keywords: education subsidies; income inequality; skill-biased technology diffusion

JEL Classification: H23; J22; O33


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About the article

Published Online: 2018-05-18

Funding Source: FCT

Award identifier / Grant number: UID/ECO/04007/2013 (POCI-01-0145-FEDER-007659)

CEFAGE-UBI has financial support from FCT, Portugal, and FEDER/COMPETE 2020, through grant UID/ECO/04007/2013 (POCI-01-0145-FEDER-007659). Manuela Magalhães gratefully acknowledge financial support from FCT (via POCI, project number 24068/2005), from University of Warwick, from University of Alicante, and from the Spanish Ministry of Economics and Competition (ECO2012-36719).

Citation Information: The B.E. Journal of Macroeconomics, 20170227, ISSN (Online) 1935-1690, DOI: https://doi.org/10.1515/bejm-2017-0227.

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