Optimal education and pensions in an endogenous growth model
AbstractIt is well known that, in OLG economies with life-cycle saving and exogenous growth, competitive equilibria will in general fail to achieve optimality and may even be dynamically inefficient. This is a consequence of individuals accumulating amounts of physical capital that differ from the level which would maximize welfare along a balanced growth path (the Golden Rule). With human capital, a second potential source of departure from optimality arises, to wit: individuals may not choose the correct amount of education investment. However, the Golden Rule concept, widely used in exogenous growth frameworks, has not found its way into endogenous growth models. In this paper, we propose to recover the Golden Rule of physical and also human capital accumulation. The optimal policy to decentralize the Golden Rule balanced growth path when there are no constraints for individuals to finance their education investments is also characterized. It is shown that it involves positive pensions and negative education subsidies (i.e., taxes)
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2009079.
Date of creation: 01 Dec 2009
Date of revision:
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endogenous growth; human capital; intergenerational transfers; education policy;
Other versions of this item:
- Del Rey, Elena & Lopez-Garcia, Miguel-Angel, 2013. "Optimal education and pensions in an endogenous growth model," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1737-1750.
- D90 - Microeconomics - - Intertemporal Choice - - - General
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-28 (All new papers)
- NEP-DGE-2010-03-28 (Dynamic General Equilibrium)
- NEP-EDU-2010-03-28 (Education)
- NEP-FDG-2010-03-28 (Financial Development & Growth)
- NEP-HRM-2010-03-28 (Human Capital & Human Resource Management)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Optimal education and pensions in an endogenous growth model
by Christian Zimmermann in NEP-DGE blog on 2010-03-29 18:22:20
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