TAXES AND TRANSPER-PRICING5/16/2019 INCOME SHIFTING AND THE VOLUME OF INTRA-FIRM TRANSPERS The first two chapters consider parents choice of schools for their children. The claim that parental choice can create incentives for schools to become more productive is a tenet of the neoclassical analysis of education. It relies crucially on the assumption that parents will choose effective, productive schools. This is far from obvious if peer effects are important, parents may be perfectly rational in preferring wealthy, ineffective schools to competitors that are less advantaged but more effective, and even if there are no peer effects, the strong association between school average test scores and student composition.
