tial stock of human capital without any other changes in exogenous parameters
leads into a slight increase in the interest rate, while the welfare effects of the
supplementary tax rate, measured using equivalent variation, change only mar-
ginally. The welfare effects of draft system with a given level of supplementary
draft tax are robust to variation in the elasticity of new human capital with
respect to time devoted to learning. Our final reported experiment shows that
the welfare effects of supplementary tax rate on draftees remain unchanged when
the parameters related to leisure in the utility function are changed so that the
economy ends up in the same interest rate as in the initial steady-state.
Table 4. Effects of move to draft system across different initial parameter values (percentage change from initial steady
state equilibrium)a
|
0 percent |
Supplementary tax rate 50 percent |
100 percent | ||||
|
Welfare of |
Welfare of |
Welfare of |
Welfare of |
Welfare of |
Welfare of | |
|
Initial stock of human capital: |
-1.0 |
-0.1 |
-3.4 |
-0.1 |
-5.8 |
-0.1 |
|
ho = 0.75 ; r = 5.07% |
-1.3 |
-0.2 |
-3.5 |
-0.1 |
-5.7 |
-0.1 |
|
h = 0.50 ; r = 5.14% |
-1.8 |
-0.2 |
-3.8 |
-0.2 |
-5.8 |
-0.2 |
|
h0 = 0.25 ; r = 5.21% |
-2.6 |
-0.3 |
-4.2 |
-0.3 |
-5.8 |
-0.3 |
|
Elasticity wrt. training (η): |
-0.6 |
-0.1 |
-3.2 |
0.0 |
-5.8 |
0.0 |
|
η = 0.75 |
-1.0 |
-0.1 |
-3.4 |
-0.1 |
-5.8 |
-0.1 |
|
η = 0.60 |
-1.3 |
-0.2 |
-3.6 |
-0.1 |
-5.8 |
-0.1 |
|
Preferences wrt. utility: |
-1.0 |
-0.1 |
-3.4 |
-0.1 |
-5.8 |
-0.1 |
|
μ = 0.25 ; α = 0.75 |
-1.0 |
-0.1 |
-3.4 |
-0.1 |
-5.8 |
-0.1 |
|
μ = 0.35 ; α = 0.85_______________ |
-1.0 |
-0.1 |
-3.4 |
-0.1 |
-5.8 |
0.0 |
Note: (a) 25 percent of the population is subject to draft and the initial tax rate on wage income is 37.5 percent.
5 Conclusion
Our results show that the widely held view of the draft as a socially cheap method
to recruit personnel for public services is a myth. To economists, such an ob-
servation may not be surprising, since volunteer recruitment via labor markets
traditionally is considered as the most effective way to realize gains from the
division of labor and specialization. Adam Smith made a clear case against con-
scription and found an “irresistible superiority which a well-regulated standing
[=all-volunteer] army has over a militia [= conscription]” (Smith 1976 [1776],
p. 701). Smith’s observation and most other arguments against the draft mainly
rely on differences in comparative advantages between citizens. What is striking
in our findings is that the inefficiency of the draft also emerges in the absence of
any such differences.
In our approach, the ine∏ciency of the draft results from its specific incidence
over the life-cycle: The draft hits individuals in the early stages of their eco-
nomically active life, thereby postponing the accumulation of human capital and
18