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Growth dynamics and education spending: The role of inherited tastes and abilities

  • de la Croix, David

We present an overlapping generations model with endogenous growth in which children inherit from the previous generation human capital and life standard aspirations. Adults evaluate their own consumption with respect to a baseline requirement which depends on their parents past consumption. The presence of bequeathed tastes changes significantly the dynamic properties of the model. First, starting with too high aspirations or with too low education spendings lead the economy to a poverty trap. Second, the economy can be characterized by oscillations because inherit human capital may not be sufficient to cover the bequest in terms of higher aspirations. Third, the endogenous growth steady state can be surrounded by a repelling cycle which delimits an attraction basin.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 45 (2001)
Issue (Month): 8 (August)
Pages: 1415-1438

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Handle: RePEc:eee:eecrev:v:45:y:2001:i:8:p:1415-1438
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