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Educational Choice, Credit Constraints and Public Policy in an Overlapping Generations Framework

Author

Listed:
  • Fender, J.
  • Wang, P.

Abstract

This paper develops a two-period overlapping generations model where agents choose whether to become educated when young. While education enhances productivity, it needs to be financed by borrowing. Because of the possibility of default, lenders may ration credit. We characterize the steady-state equilibrium with and without credit constraints and show that credit rationing tends to discourage education and raise the real rate of interest.

Suggested Citation

  • Fender, J. & Wang, P., 1996. "Educational Choice, Credit Constraints and Public Policy in an Overlapping Generations Framework," Discussion Papers 96-16, Department of Economics, University of Birmingham.
  • Handle: RePEc:bir:birmec:96-16
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    More about this item

    Keywords

    EDUCATION; CREDIT; GOVERNMENT POLICY; FISCAL POLICY;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I20 - Health, Education, and Welfare - - Education - - - General

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