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Public education and capital accumulation

  • Boldrin, Michele

I study an overlapping generations model where physical and human capitals are used in production and can be accumulated by withholding resources from current consumption. Human capital is accumulated through a schooling system which can be finance either by private expenditures or by taxes on current income or by a combination of both. IN a political equilibrium with majority voting, the median voter may approve of public school financing as an instrument to solve a "free rider problem". It improves the skills of next period's workers which in turn increases the expected return on capital, something which could not be achieved by means of private school financing. Public schools, moreover, turns out to be an instrument for intergenerational income distribution so that they may be preferred to private schools for this motive as well. The model is shown to display a poverty trap (poor societies vote to invest too little in education) as well as persistent growth. I am able to fully characterize the global dynamics of the model, which delivers a number of interesting and potentially testable hypotheses on the relation between income growth , capital accumulation and the development of public education I also endogenize the dynamic behavior of school attendance rates, as well as the choice between public and private financing of schools in the presence of parental altruism. A particular attention is paid to the different performances of a publicly provided school system vis-a-vis a publicly financed school system. It is shown that, under very general conditions, the latter tends to create a better environment for the accumulation of human capital as it fosters support for public education trough the voting mechanism. All through the paper I concentrate on specific functional forms that allow for a closed form solution of the equilibrium dynamics, but all the important results can be shown to apply for a general class of utility and produciton functions.

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Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 59 (2005)
Issue (Month): 2 (June)
Pages: 85-109

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Handle: RePEc:eee:reecon:v:59:y:2005:i:2:p:85-109
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622941

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  11. Lorenzo Forni, 2005. "Social Security as Markov Equilibrium in OLG Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 178-194, January.
  12. Boldrin, Michele & Montes, Ana, 2002. "The Intergenerational State: Education and Pensions," CEPR Discussion Papers 3275, C.E.P.R. Discussion Papers.
  13. Raquel Fernandez & Richard Rogerson, 1992. "Income Distribution, Communities and the Quality of Public Education: A Policy Analysis," NBER Working Papers 4158, National Bureau of Economic Research, Inc.
  14. Chamley, Christophe, 1993. "Externalities and Dynamics in Models of "Learning or Doing."," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 583-609, August.
  15. Michele Boldrin & Larry E. Jones & Aubhik Khan, 2005. "Three Equations Generating an Industrial Revolution?," Levine's Bibliography 784828000000000385, UCLA Department of Economics.
  16. Jones, Larry E. & Manuelli, Rodolfo E., 1992. "Finite lifetimes and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 171-197, December.
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  19. Michele Boldrin & Larry E. Jones, 2002. "Mortality, Fertility, and Saving in a Malthusian Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 775-814, October.
  20. V. V. Chari & Patrick J. Kehoe, 1989. "Sustainable plans and mutual default," Staff Report 124, Federal Reserve Bank of Minneapolis.
  21. Peltzman, Sam, 1973. "The Effect of Government Subsidies-in-Kind on Private Expenditures: The Case of Higher Education," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 1-27, Jan.-Feb..
  22. Ehrlich, Isaac & Lui, Francis T, 1991. "Intergenerational Trade, Longevity, and Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1029-59, October.
  23. Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January.
  24. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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  26. Stiglitz, J. E., 1974. "The demand for education in public and private school systems," Journal of Public Economics, Elsevier, vol. 3(4), pages 349-385, November.
  27. Michele Boldrin, 1991. "Threshold Externalities and Economic Development: A Note," Discussion Papers 953, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  28. West, Edwin G., 1991. "Public schools and excess burdens," Economics of Education Review, Elsevier, vol. 10(2), pages 159-169, June.
  29. Wolfgang Leininger, 1986. "The Existence of Perfect Equilibria in a Model of Growth with Altruism between Generations," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 349-367.
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