IDEAS home Printed from https://ideas.repec.org/a/eeb/articl/v2y2016n3p222-247.html
   My bibliography  Save this article

Impact of Education Subsidies and Taxation on Wealth and Human Capital Accumulation

Author

Listed:
  • Wei-Bin Zhang

    () (Ritsumeikan Asia Pacific University)

Abstract

This paper proposes an economic growth model of endogenous wealth and human capital with government’s subsidy policies on education. The economic system is built on the basis of the Solow growth model and the Uzawa-Lucas two-sector model. We take into account three ways of accumulating human capital: learning by producing, learning by education, and learning by consuming. The model describes a dynamic interdependence among wealth accumulation, human capital accumulation, division of labor, and government taxation. We simulate the model to demonstrate the existence of equilibrium points and motion of the dynamic system. We also examine the effects of changes in the propensity to receive education, efficiency of learning, and efficiency of education upon dynamic paths of the system.

Suggested Citation

  • Wei-Bin Zhang, 2016. "Impact of Education Subsidies and Taxation on Wealth and Human Capital Accumulation," Eastern European Business and Economics Journal, Eastern European Business and Economics Studies Centre, vol. 2(3), pages 222-247.
  • Handle: RePEc:eeb:articl:v:2:y:2016:n:3:p:222-247
    as

    Download full text from publisher

    File URL: http://eebej.eu/Zhang-W-2016-Impact-of-Education-Subsidies-and-Taxation-on-Wealth-and-Human-Capital-Accumulation-Eastern-European-Business-and-Economics-Journal-23-222-247/
    Download Restriction: for print copy of the journal 50 Euro, preview on web - free

    File URL: http://eebej.eu/2016v2n3/222-247.pdf
    Download Restriction: for print copy of the journal 50 Euro, preview on web - free

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Stokey, Nancy L & Rebelo, Sergio, 1995. "Growth Effects of Flat-Rate Taxes," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 519-550, June.
    2. anonymous, 1995. "Does the bouncing ball lead to economic growth?," Regional Update, Federal Reserve Bank of Atlanta, issue Jul, pages 1-2,4-6.
    3. Funke, Michael & Strulik, Holger, 2000. "On endogenous growth with physical capital, human capital and product variety," European Economic Review, Elsevier, vol. 44(3), pages 491-515, March.
    4. Chanda, Areendam, 2008. "The rise in returns to education and the decline in household savings," Journal of Economic Dynamics and Control, Elsevier, vol. 32(2), pages 436-469, February.
    5. Stiglitz, Joseph E, 1975. "The Theory of "Screening," Education, and the Distribution of Income," American Economic Review, American Economic Association, vol. 65(3), pages 283-300, June.
    6. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    7. Xavier Sala-I-Martin, 1997. "Transfers, Social Safety Nets, and Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 81-102, March.
    8. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    9. Gilat Levy, 2005. "The Politics of Public Provision of Education," The Quarterly Journal of Economics, Oxford University Press, vol. 120(4), pages 1507-1534.
    10. Bas Jacobs, 2005. "Optimal Income Taxation with Endogenous Human Capital," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(2), pages 295-315, May.
    11. Kaganovich, Michael & Zilcha, Itzhak, 1999. "Education, social security, and growth," Journal of Public Economics, Elsevier, vol. 71(2), pages 289-309, February.
    12. Castelló-Climent, Amparo & Hidalgo-Cabrillana, Ana, 2012. "The role of educational quality and quantity in the process of economic development," Economics of Education Review, Elsevier, vol. 31(4), pages 391-409.
    13. Mino, Kazuo, 2001. "Optimal taxation in dynamic economies with increasing returns," Japan and the World Economy, Elsevier, vol. 13(3), pages 235-253, August.
    14. de Hek, Paul A., 2006. "On taxation in a two-sector endogenous growth model with endogenous labor supply," Journal of Economic Dynamics and Control, Elsevier, vol. 30(4), pages 655-685, April.
    15. A. Lans Bovenberg & Bas Jacobs, 2005. "Redistribution and Education Subsidies are Siamese Twins," Tinbergen Institute Discussion Papers 05-036/3, Tinbergen Institute.
    16. Lans Bovenberg, A. & Jacobs, Bas, 2005. "Redistribution and education subsidies are Siamese twins," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2005-2035, December.
    17. Zhang, Jie, 2003. "Optimal debt, endogenous fertility, and human capital externalities in a model with altruistic bequests," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1825-1835, August.
    18. Arcalean, Calin & Schiopu, Ioana, 2010. "Public versus private investment and growth in a hierarchical education system," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 604-622, April.
    19. Wei-Bin Zhang, 2014. "Growth with gender-differentiated human capital and family wealth accumulation based on the Uzawa-Lucas two-sector model," Society and Economy, Akadémiai Kiadó, Hungary, vol. 36(1), pages 69-94, March.
    20. Eckstein, Zvi & Zilcha, Itzhak, 1994. "The effects of compulsory schooling on growth, income distribution and welfare," Journal of Public Economics, Elsevier, vol. 54(3), pages 339-359, July.
    21. Kenneth J. Arrow, 1962. "The Economic Implications of Learning by Doing," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 155-173.
    22. Elizabeth M. Caucutt, 2002. "Educational Vouchers When There Are Peer Group Effects--Size Matters," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 195-222, February.
    23. Zhang, Wei-Bin, 1993. "A woman's labor participation and economic growth : Creativity, knowledge utilization and family preference," Economics Letters, Elsevier, vol. 42(1), pages 105-110.
    24. Wei-Bin Zhang, 2007. "Economic Growth with Learning by Producing, Learning by Education and Learning by Consuming," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 5(1), pages 21-38.
    25. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-350, April.
    26. Mino, Kazuo, 1996. "Analysis of a Two-Sector Model of Endogenous Growth with Capital Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 227-251, February.
    27. Caucutt, Elizabeth M. & Kumar, Krishna B., 2003. "Higher education subsidies and heterogeneity: a dynamic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 27(8), pages 1459-1502, June.
    28. Arrow, Kenneth J., 1973. "Higher education as a filter," Journal of Public Economics, Elsevier, vol. 2(3), pages 193-216, July.
    29. Blankenau, William F. & Simpson, Nicole B., 2004. "Public education expenditures and growth," Journal of Development Economics, Elsevier, vol. 73(2), pages 583-605, April.
    30. Chakraborty, Bidisha & Gupta, Manash Ranjan, 2009. "Human capital, inequality, endogenous growth and educational subsidy: A theoretical analysis," Research in Economics, Elsevier, vol. 63(2), pages 77-90, June.
    31. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
    32. Buly A. Cardak, 2004. "Education Choice, Endogenous Growth and Income Distribution," Economica, London School of Economics and Political Science, vol. 71, pages 57-81, February.
    33. Booth, A.L. & Coles, M.G., 2010. "Tax policy and returns to education," Labour Economics, Elsevier, vol. 17(1), pages 291-301, January.
    34. Alonso-Carrera, Jaime & Freire-Seren, Maria Jesus, 2004. "Multiple equilibria, fiscal policy, and human capital accumulation," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 841-856, January.
    35. Sanghoon Lee, 2007. "The Timing Of Signaling: To Study In High School Or In College?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 785-807, August.
    36. Fethke, Gary, 2011. "Welfare effects of subsidizing higher education when access and quality are endogenous," Economics Letters, Elsevier, vol. 112(1), pages 45-48, July.
    37. Jerik Hanushek & Dennis Kimko, 2006. "Schooling, Labor-force Quality, and the Growth of Nations," Educational Studies, Higher School of Economics, issue 1, pages 154-193.
    38. Chen, Hung-ju, 2005. "Educational systems, growth and income distribution: a quantitative study," Journal of Development Economics, Elsevier, vol. 76(2), pages 325-353, April.
    39. Su, Xuejuan, 2006. "Endogenous determination of public budget allocation across education stages," Journal of Development Economics, Elsevier, vol. 81(2), pages 438-456, December.
    40. Rangazas, Peter, 2000. "Schooling and economic growth: A King-Rebelo experiment with human capital," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 397-416, October.
    41. Bergh, Andreas & Fink, Günther, 2009. "Higher education, elite institutions and inequality," European Economic Review, Elsevier, vol. 53(3), pages 376-384, April.
    42. Peter Rangazas, 2002. "The Quantity and Quality of Schooling and U.S. Labor Productivity Growth (1870-2000)," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 932-964, October.
    43. Sano, Koichiro & Tomoda, Yasunobu, 2010. "Optimal public education policy in a two sector model," Economic Modelling, Elsevier, vol. 27(5), pages 991-995, September.
    44. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March.
    45. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
    46. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eeb:articl:v:2:y:2016:n:3:p:222-247. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valerijs). General contact details of provider: http://eebej.eu .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.