Endogenous Selection of Comparison Groups, Human Capital Formation, and Tax Policy

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)62-75
Journal / PublicationEconomica
Issue number313
Publication statusPublished - Jan 2012


We consider a setting in which the acquisition of human capital entails a change of location in social space that causes individuals to revise their comparison groups. Skill levels are viewed as occupational groups. Moving up the skill ladder by acquiring additional human capital, in itself rewarding, leads to a shift in the individual's inclination to compare himself with a different, and on average better-paid, comparison group, in itself penalizing. We shed new light on the dynamics of human capital formation, and suggest novel policy interventions to encourage human capital formation in the aggregate and reduce inter-group income inequality. © The Authors. Economica © 2010 The London School of Economics and Political Science.