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Optimal policies, middle class development and human capital accumulation under elite rivalry

Author

Listed:
  • Elena Sochirca

    (NECE Research Unit
    NIPE Research Unit)

  • Pedro Cunha Neves

    (CEFAGE Research Unit)

Abstract

We build a dynamic model with endogenous middle class development, human capital accumulation, and policy choices, in order to analyze the interactions between the optimal policies implemented by the ruling elite and the key drivers of economic growth in the presence of elite rivalry. We consider that: (1) the specific policy choices depend on economic and political incentives of the elite; (2) the individuals’ decisions regarding their children’s education are endogenously determined by specific economic and political factors. Our results suggest that, contrarily to the economically motivated policies, the politically motivated policy choices imply inefficient economic outcomes and limit the development of the middle class and human capital accumulation. The results also show that higher middle class and human capital accumulation growth rates can lower the degree of elite rivalry by reducing the level of the optimal tax rate, increase public investments in education, and yield positive changes in all economic outcomes.

Suggested Citation

  • Elena Sochirca & Pedro Cunha Neves, 2020. "Optimal policies, middle class development and human capital accumulation under elite rivalry," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(4), pages 727-744, December.
    • Handle: RePEc:spr:eurase:v:10:y:2020:i:4:d:10.1007_s40822-020-00150-5
    DOI: 10.1007/s40822-020-00150-5
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    More about this item

    Keywords

    Elite rivalry; Middle class; Public policy; Economic growth and development; Human capital;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems

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