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Investment in Human Capital in a Macrodynamic Framework: Redistributive Taxation, Public Debt and Welfare

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  • Leandro Nascimento
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    Abstract

    Efficient investment in human capital is a subject of great concern among economists. By means of an overlapping-generations macrodynamic model with credit constraints, imperfect insurance and exogenous labor supply, we appraise inefficiencies related to misinvestment in human capital and propose a simple scheme of redistributive taxation to mitigate them. A numerical simulation is calibrated in order to match stylized facts of Brazilian economy and shows that, in steady-state, with a flat-tax mechanism and lump-sum transfers, government intervention is beneficial to the extent it maximizes our utilitarian measure of welfare and reduces both inefficiency associated with misdirected investment in human capital and standard inequality indexes. After considering the possibility of decomposing our utilitarian measure of welfare and of allowing for public debt, we show that reduced inequality is the driving force which accounts for welfare improvement and that public debt plays no role. Robustness analysis shows that endogenizing labor supply does not lead to substantial changes in previous results

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    File URL: http://repec.org/esLATM04/up.13316.1081456879.pdf
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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 100.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:latm04:100

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    Keywords: investment in human capital; idiosyncratic risk; efficiency; overaccumulation of capital; redistributive taxation; public debt; welfare measures; social insurance;

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    1. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
    2. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
    3. S. Rao Aiyagari & Jeremy Greenwood & Anath Seshardi, 2001. "Efficient investment in children," Working Paper 0105, Federal Reserve Bank of Cleveland.
    4. Ferreira, Pedro Cavalcanti Gomes & Cunha, Bárbara Vasconcelos Boavista da, 2003. "Custo de Ciclo Econômico no Brasil em um Modelo com Restrição a Crédito," Economics Working Papers (Ensaios Economicos da EPGE) 471, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    5. Gomes, Joao & Greenwood, Jeremy & Rebelo, Sergio, 2001. "Equilibrium unemployment," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 109-152, August.
    6. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
    7. Lance Lochner & Alexander Monge-Naranjo, 2002. "Human Capital Formation with Endogenous Credit Constraints," NBER Working Papers 8815, National Bureau of Economic Research, Inc.
    8. Val, Paulo Rogério da Costa & Ferreira, Pedro Cavalcanti Gomes, 2002. "Modelos de Ciclos Reais de Negócios Aplicados à Economis Brasileira," Economics Working Papers (Ensaios Economicos da EPGE) 438, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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