Technological Change and Public Financing of Education
AbstractWe study investment in education in an overlapping generation model with altruism where credit market imperfections ration borrowing and cause persistent underinvestment in human capital. We characterize the optimal government policy and the policy that would emerge under majority voting in response to a technological change that raises the returns to education. The optimal government policy consists in a transfer of resources from future to current generations to finance investment in education and an increase in consumption for the current old generation. The policy chosen under majority voting accomplishes a generational transfer only if a majority of individuals are credit constrained. We consider two policy instruments: a labor income tax and an education subsidy. Current voters prefer a reduction in the current income tax rate to an education subsidy, as the former can finance an increase in their consumption.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 579.
Length: 32 pages
Date of creation: 01 Nov 2001
Date of revision:
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Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Web page: http://fmwww.bc.edu/EC/
More information through EDIRC
Skill-biased technological change; Education; Deficits;
Find related papers by JEL classification:
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
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