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On welfare criteria and optimality in an endogenous growth model

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  • DEL REY, Elena

    ()
    (Universitat de Girona, Spain)

  • LOPEZ-GARCIA, Miguel ANgel

    ()
    (Universitat Autonoma de Barcelona, Spain)

Abstract

In this paper we explore the consequences for optimality of a social planner adopting two different welfare criteria. The framework of analysis is an OLG model with physical and human capital. We first show that, when the SWF is a discounted sum of individual utilities defined over consumption per unit of natural labour, the precise cardinalization of the individual utility function becomes crucial for the characterization of the social optimum. Also, decentralizing the social optimum requires an education subsidy. In contrast, when the SWF is a discounted sum of individual utilities defined over consumption per unit of efficient labour, the precise cardinalization of preferences becomes irrelevant. More strikingly, along the optimal growth path, education should be taxed.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010024.

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Date of creation: 01 May 2010
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Handle: RePEc:cor:louvco:2010024

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Keywords: endogenous growth; human capital; intergenerational transfers; education policy;

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Cited by:
  1. Torben M. Andersen & Joydeep Bhattacharya, 2013. "The Intergenerational Welfare State," CESifo Working Paper Series 4359, CESifo Group Munich.
  2. 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.

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