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Publicly Financed Education in an Endogenous Growth Model

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  • John Creedy
  • Norman Gemmell

    ()
    (The Treasury)

Abstract

This paper constructs an endogenous growth model, applicable largely to developing countries, based on human capital accumulation in which education is publicly provided and financed, and schooling is compulsory. Public investment in human and physical capital are financed from taxes on wage and capital income, and consumption. The equilibrium growth properties of the model are examined and the steady-state effects of education and fiscal policy are derived. The specification of the human capital production function and the strength of labour supply effects are shown to be important for the magnitude of steady-state outcomes. Simulations illustrate the model's properties.

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Bibliographic Info

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 02/24.

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Length: 25 pages
Date of creation: Dec 2002
Date of revision:
Handle: RePEc:nzt:nztwps:02/24

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Keywords: Education; Taxation; Endogenous Growth; Labour Supply; General Equilibrium;

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References

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  1. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(5), pages S103-26, October.
  2. Asea, Patrick & Mendoza, Enrique G & Milesi-Ferretti, Gian Maria, 1996. "On the Ineffectiveness of Tax Policy in Altering Long- Run Growth: Harberger's Superneutrality Conjecture," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1378, C.E.P.R. Discussion Papers.
  3. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(3), pages 500-521, June.
  4. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  5. Devereux, Michael B & Love, David R F, 1995. "The Dynamic Effects of Government Spending Policies in a Two-Sector Endogenous Growth Model," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(1), pages 232-56, February.
  6. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(2), pages 407-37, May.
  7. King, R.G. & Rebelo, S., 1988. "Public Policy And Economic Growth: Developing Neoclassical Implications," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 225, University of Rochester - Center for Economic Research (RCER).
  8. Robert J. Barro & Xavier Sala-i-Martin, 1990. "Public Finance in Models of Economic Growth," NBER Working Papers 3362, National Bureau of Economic Research, Inc.
  9. Gareth Myles, 2000. "Taxation and economic growth," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 141-168, March.
  10. Topel, Robert, 1999. "Labor markets and economic growth," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 44, pages 2943-2984 Elsevier.
  11. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 244, University of Rochester - Center for Economic Research (RCER).
  12. Caballe, Jordi & Santos, Manuel S, 1993. "On Endogenous Growth with Physical and Human Capital," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(6), pages 1042-67, December.
  13. Stokey, Nancy L & Rebelo, Sergio, 1995. "Growth Effects of Flat-Rate Taxes," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(3), pages 519-50, June.
  14. Pecorino, Paul, 1993. "Tax structure and growth in a model with human capital," Journal of Public Economics, Elsevier, Elsevier, vol. 52(2), pages 251-271, September.
  15. Michael Bleaney & Norman Gemmell & Richard Kneller, 2001. "Testing the endogenous growth model: public expenditure, taxation, and growth over the long run," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 34(1), pages 36-57, February.
  16. Capolupo, Rosa, 2000. "Output Taxation, Human Capital and Growth," Manchester School, University of Manchester, University of Manchester, vol. 68(2), pages 166-83, March.
  17. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, Elsevier, vol. 74(2), pages 171-190, November.
  18. Milesi-Ferretti, Gian Maria & Roubini, Nouriel, 1998. "On the taxation of human and physical capital in models of endogenous growth," Journal of Public Economics, Elsevier, Elsevier, vol. 70(2), pages 237-254, November.
  19. Laitner, John, 1995. "Quantitative Evaluations of Efficient Tax Policies for Lucas' Supply Side Models," Oxford Economic Papers, Oxford University Press, vol. 47(3), pages 471-92, July.
  20. Mourmouras, Iannis A. & Lee, Jong Eun, 1999. "Government spending on infrastructure in an endogenous growth model with finite horizons," Journal of Economics and Business, Elsevier, Elsevier, vol. 51(5), pages 395-407, September.
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Cited by:
  1. Cosmin Enache, 2009. "Fiscal Policy And Economic Growth In Romania," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(11), pages 50.

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