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Capital Mobility, Fiscal Policy, and Growth under Self-Financing of Human Capital Formation

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  • Willem H. Buiter
  • Kenneth M. Kletzer

Abstract

This paper, which is to appear in a volume honoring the memory of Doug Purvis, considers the effects of fiscal and financial policy on economic growth in open and closed economies, when human capital formation by young households is constrained by the illiquidity of human wealth. Both endogeneous and exogenous growth versions of the basic OLG model are analysed. We find that intergenerational redistribution policies that discourage physical capital formation may encourage human capital formation. Despite common technologies and perfect international mobility of financial capital, the non-tradedness of human capital and the illiquidity of human wealth make for persistent differences in productivity growth rates (in the endogenous growth version of the model) or in their levels (in the exogenous growth version). We also consider the productivity growth (or level) effects of public spending on education and of the distortionary taxation of financial asset income.

Suggested Citation

  • Willem H. Buiter & Kenneth M. Kletzer, 1995. "Capital Mobility, Fiscal Policy, and Growth under Self-Financing of Human Capital Formation," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 163-194, November.
  • Handle: RePEc:cje:issued:v:28:y:1995:i:s1:p:163-94
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    Cited by:

    1. van de Klundert, Theo & Smulders, Sjak, 2001. "Loss of technological leadership of rentier economies: a two-country endogenous growth model," Journal of International Economics, Elsevier, vol. 54(1), pages 211-231, June.
    2. David Croix & Philippe Michel, 2007. "Education and growth with endogenous debt constraints," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 33(3), pages 509-530, December.
    3. Soares, Jorge, 2015. "Borrowing constraints, parental altruism and welfare," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 1-20.
    4. Das, Satya P., 2006. "Trade, skill acquisition and distribution," Journal of Development Economics, Elsevier, vol. 81(1), pages 118-141, October.
    5. Hettich, Frank & Svane, Minna Selene, 1998. "Environmental policy in a two sector endogenous growth model," Discussion Papers, Series I 290, University of Konstanz, Department of Economics.
    6. Erasmo Papagni, 2008. "The Long-run Effects of Household Liquidity Constraints and Taxation on Fertility, Education, Saving, and Growth," Discussion Papers 11_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
    7. Rodolfo Cermeño & María Roa García & Claudio González-Vega, 2012. "Financial Development and Volatility of Growth: Time Series Evidence for Mexico and USA," DEGIT Conference Papers c017_035, DEGIT, Dynamics, Economic Growth, and International Trade.
    8. Philippe Monfort & David de la Croix, 2000. "Education funding and regional convergence," Journal of Population Economics, Springer;European Society for Population Economics, vol. 13(3), pages 403-424.
    9. Simone Valente, 2005. "Tax Policy and Human Capital Formation with Public Investment in Education," Journal of Economics, Springer, vol. 86(3), pages 229-258, December.
    10. Blackburn, Keith & Hung, Victor T. Y. & Pozzolo, Alberto F., 2000. "Research, Development and Human Capital Accumulation," Journal of Macroeconomics, Elsevier, vol. 22(2), pages 189-206, April.
    11. Rodolfo Cermeño & María José Roa, 2013. "Desarrollo financiero, crecimiento y volatidad: Revisión de la literatura reciente," Documentos de Investigación - Research Papers 9, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    12. Kitaura, Koji, 2012. "Education, borrowing constraints and growth," Economics Letters, Elsevier, vol. 116(3), pages 575-578.
    13. Lechman, Ewa, 2014. "Changing patterns of export of goods versus macroeconomic competitiveness. A comparative analysis for East-Central European countries in the period 2000-2011," MPRA Paper 53639, University Library of Munich, Germany.
    14. Osang, Thomas & Sarkar, Jayanta, 2005. "Endogenous Mortality, Human Capital and Endogenous Growth," Departmental Working Papers 0511, Southern Methodist University, Department of Economics.
    15. Verbic, Miroslav & Majcen, Boris & Cok, Mitja, 2009. "Education and Economic Growth in Slovenia: A Dynamic General Equilibrium Approach with Endogenous Growth," MPRA Paper 17817, University Library of Munich, Germany.
    16. Rodolfo Cermeño Bazán & María Roa García & Claudio González Vega, 2012. "Financial Development and Growth Volatility: Time Series Evidence for Mexico and The United States," Working papers DTE 544, CIDE, División de Economía.
    17. Thomas Krichel, 1998. "Growing at Different Rates," School of Economics Discussion Papers 9801, School of Economics, University of Surrey.
    18. Chin, M.S. & Chou, Y.K., 2001. "Human Capital, Financial Innovations and Growth: A Theoretical Approach," Department of Economics - Working Papers Series 826, The University of Melbourne.
    19. F. Heylen & A. Schollaert & G. Everaert & L. Pozzi, 2003. "Inflation and human capital formation : theory and panel data evidence," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 03/174, Ghent University, Faculty of Economics and Business Administration.
    20. Dina Mandour, 2007. "Investigating The Impact Of Health and Enviromental Standards on Exports: The Case Of Egyptian Agro-Food Exports To The EU," Working Papers 707, Economic Research Forum, revised 01 Jan 2007.
    21. Viaene, Jean-Marie & Zilcha, Itzhak, 2002. "Public education under capital mobility," Journal of Economic Dynamics and Control, Elsevier, vol. 26(12), pages 2005-2036, October.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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