Redistributive Policies and Technology Diffusion

Magalhães, M., T. Sequeira (forthcoming), "Redistributive Policies and Technology Diffusion", The BE Journal of Macroeconomics.

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.