On welfare criteria and optimality in an endogenous growth model
AbstractIn 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 InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010024.
Date of creation: 01 May 2010
Date of revision:
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endogenous growth; human capital; intergenerational transfers; education policy;
Other versions of this item:
- Elena Del Rey & Miguel-Angel Lopez-Garcia, 2012. "On Welfare Criteria and Optimality in an Endogenous Growth Model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(6), pages 927-943, December.
- 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-2010-10-02 (All new papers)
- NEP-DGE-2010-10-02 (Dynamic General Equilibrium)
- NEP-FDG-2010-10-02 (Financial Development & Growth)
- NEP-HRM-2010-10-02 (Human Capital & Human Resource Management)
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- 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.
- DEL REY, Elena & LOPEZ-GARCIA, Miguel, 2009. "Optimal education and pensions in an endogenous growth model," CORE Discussion Papers 2009079, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Torben M. Andersen & Joydeep Bhattacharya, 2013. "The Intergenerational Welfare State," CESifo Working Paper Series 4359, CESifo Group Munich.
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