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Government Debt and Education Subsidies by Synthesizing the Uzawa-Lucas Two-Sector Model and Diamond Growth-Debt Model


  • Zhang, Wei-Bin

    () (Ritsumeikan Asia Pacific University)


The purpose of this paper is to study dynamic relationships between economic growth and government debts with endogenous wealth and human capital accumulation. We extend the Uzawa-Lucas twosector growth model by introducing the government debt and the three sources of human capital accumulation, Arrow's learning by doing, Uzawa's learning by education, and Zhang's creative leisure. The model emphasizes the role of government's education subsidy policies on economic growth and the dynamics of government debt. It synthesizes the Uzawa-Lucas two sector and the Diamond model with Zhang's approach to household behavior. The model introduces various taxes on different economic agents. Education is financially supported by public subsidies and the household. We simulate the model to demonstrate existence of an equilibrium point and motion of the dynamic system. We also examine effects of changes in some parameters. As the system is unstable, we conduct comparative dynamic analysis in the short term.

Suggested Citation

  • Zhang, Wei-Bin, 2017. "Government Debt and Education Subsidies by Synthesizing the Uzawa-Lucas Two-Sector Model and Diamond Growth-Debt Model," Zeitschrift für interdisziplinäre ökonomische Forschung, Allensbach Hochschule, issue 1, pages 22-33, June.
  • Handle: RePEc:ris:zfioef:0092

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    More about this item


    Uzawa-Lucas model; Diamond model; learning by consuming; government debt; propensity to receive education;

    JEL classification:

    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models


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