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Public Expenditure on Education and Skill Formation: Is There a Simple Rule to Maximize Skills?

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  • Rossana Patrón

    ()
    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

  • Marcel Vaillant

    ()
    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

Abstract

The ratio of skill to unskilled labour stocks in the economy is widely acknowledged to have an important role for development. Can education policy affect the evolution of this ratio? This paper shows that it can, and it also shows that the actual effect of education policy depends on the allocation rule of the budget across educational levels. The consideration of a stylized hierarchical education model allows us to develop analytical conditions under which the allocation rule favours the accumulation of skills. The analysis has implication for policy makers in developing countries, where skill formation is much needed, because it shows that observed allocation rules usually violate the maximization condition by the assignment of higher-than-optimal resources to higher education.

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Bibliographic Info

Paper provided by Department of Economics - dECON in its series Documentos de Trabajo (working papers) with number 0611.

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Length: 15 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:ude:wpaper:0611

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Keywords: education budget; skills accumulation;

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  1. Su, Xuejuan, 2004. "The allocation of public funds in a hierarchical educational system," Journal of Economic Dynamics and Control, Elsevier, vol. 28(12), pages 2485-2510, December.
  2. Chris Papageorgiou, 2003. "Distinguishing Between the Effects of Primary and Post-primary Education on Economic Growth," Review of Development Economics, Wiley Blackwell, vol. 7(4), pages 622-635, November.
  3. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  4. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  5. Norman Gemmell,, . "Evaluating the Impacts of Human Capital Stocks and Accumulation on Economic Growth: Some New Evidence," Discussion Papers 95/17, University of Nottingham, CREDIT.
  6. Robert Driskill & Andrew W. Horowitz & Fabio Méndez, 2009. "Hierarchical Human Capital and Economic Growth: Theory and Evidence," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(4), pages 723-743, December.
  7. Su, Xuejuan, 2006. "Endogenous determination of public budget allocation across education stages," Journal of Development Economics, Elsevier, vol. 81(2), pages 438-456, December.
  8. Driskill, Robert A & Horowitz, Andrew W, 2002. "Investment in Hierarchical Human Capital," Review of Development Economics, Wiley Blackwell, vol. 6(1), pages 48-58, February.
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