IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_2982.html
   My bibliography  Save this paper

Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth

Author

Listed:
  • Wolfram F. Richter
  • Christoph Braun

Abstract

This paper studies second best policies for education, saving, and labour in an OLG model in which endogenous growth results from human capital accumulation. Government expenditures have to be financed by linear instruments so that growth equilibria are inefficient. The inefficiency is exacerbated if selfish individuals externalize the positive effect of education on descendents’ productivity. It is shown to be second best to subsidize education even relative to the first best if the elasticity of the human capital investment function is strictly increasing.

Suggested Citation

  • Wolfram F. Richter & Christoph Braun, 2010. "Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth," CESifo Working Paper Series 2982, CESifo.
  • Handle: RePEc:ces:ceswps:_2982
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp2982.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Docquier, Frederic & Paddison, Oliver & Pestieau, Pierre, 2007. "Optimal accumulation in an endogenous growth setting with human capital," Journal of Economic Theory, Elsevier, vol. 134(1), pages 361-378, May.
    2. Erosa, Andres & Gervais, Martin, 2002. "Optimal Taxation in Life-Cycle Economies," Journal of Economic Theory, Elsevier, vol. 105(2), pages 338-369, August.
    3. Elena Del Rey & MarÌa del Mar Racionero, 2002. "Optimal educational choice and redistribution when parental education matters," Oxford Economic Papers, Oxford University Press, vol. 54(3), pages 435-448, July.
    4. Nicholas Bull, 1993. "When all the optimal dynamic taxes are zero," Working Paper Series / Economic Activity Section 137, Board of Governors of the Federal Reserve System (U.S.).
    5. Bas Jacobs & A. Lans Bovenberg, 2011. "Optimal Taxation of Human Capital and the Earnings Function," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(6), pages 957-971, December.
    6. Lans Bovenberg, A. & Jacobs, Bas, 2005. "Redistribution and education subsidies are Siamese twins," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2005-2035, December.
    7. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, vol. 64(4), pages 701-706, September.
    8. Kirk A. Collins & James Davies, 2003. "Measuring Effective Tax Rates on Human Capital: Methodology and an Application to Canada," CESifo Working Paper Series 965, CESifo.
    9. Wolfram F. Richter, 2006. "Taxing Human Capital Efficiently: The Double Dividend of Taxing Non-qualified Labour more Heavily than Qualified Labour," CESifo Working Paper Series 1832, CESifo.
    10. King, Robert G & Plosser, Charles I & Rebelo, Sergio T, 2002. "Production, Growth and Business Cycles: Technical Appendix," Computational Economics, Springer;Society for Computational Economics, vol. 20(1-2), pages 87-116, October.
    11. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
    12. Jones, Larry E. & Manuelli, Rodolfo E. & Rossi, Peter E., 1997. "On the Optimal Taxation of Capital Income," Journal of Economic Theory, Elsevier, vol. 73(1), pages 93-117, March.
    13. Berthold U. Wigger, 1999. "Public Pensions and Growth," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(2), pages 241-241, June.
    14. R. G. Lipsey & Kelvin Lancaster, 1956. "The General Theory of Second Best," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 24(1), pages 11-32.
    15. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
    16. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June.
    17. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
    18. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
    19. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, vol. 1(1), pages 97-119, April.
    20. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
    21. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richter, Wolfram F., 2009. "Taxing education in Ramsey's tradition," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1254-1260, December.
    2. repec:zbw:rwirep:0210 is not listed on IDEAS
    3. Wolfram F. Richter, 2009. "Taxing Education in Ramsey's Tradition," Ruhr Economic Papers 0140, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    4. repec:zbw:rwirep:0140 is not listed on IDEAS
    5. Nicholas Lawson, 2014. "Liquidity Constraints, Fiscal Externalities and Optimal Tuition Subsidies Optimal College Tuition Subsidies," AMSE Working Papers 1404, Aix-Marseille School of Economics, France, revised 18 Mar 2014.
    6. Nicholas Lawson, 2017. "Liquidity Constraints, Fiscal Externalities, and Optimal Tuition Subsidies," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 313-343, November.
    7. Christoph Braun, 2010. "Optimal Taxation of Education with an Initial Endowment of Human Capital," Ruhr Economic Papers 0210, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Richter, Wolfram F., 2009. "Taxing education in Ramsey's tradition," Journal of Public Economics, Elsevier, vol. 93(11-12), pages 1254-1260, December.
    2. Milesi-Ferretti, Gian Maria & Roubini, Nouriel, 1998. "On the taxation of human and physical capital in models of endogenous growth," Journal of Public Economics, Elsevier, vol. 70(2), pages 237-254, November.
    3. Baltasar Manzano & Jesús Ruiz, 2004. "Política fiscal óptima: el estado de la cuestión," Investigaciones Economicas, Fundación SEPI, vol. 28(1), pages 5-41, January.
    4. Wolfram F. Richter, 2007. "Efficient Tax Policy Ranks Education Higher than Saving," CESifo Working Paper Series 2106, CESifo.
    5. Bas Jacobs & A. Bovenberg, 2010. "Human capital and optimal positive taxation of capital income," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(5), pages 451-478, October.
    6. Alberto Petrucci, 2007. "Optimal Taxation of Capital Income in Models with Endogenous Fertility," Development Working Papers 228, Centro Studi Luca d'Agliano, University of Milano.
    7. Jones, Larry E. & Manuelli, Rodolfo E. & Rossi, Peter E., 1997. "On the Optimal Taxation of Capital Income," Journal of Economic Theory, Elsevier, vol. 73(1), pages 93-117, March.
    8. Ge Jin & Bing Zhang, 2024. "Optimal fiscal policy with a balanced-budget restriction: revisiting Chamley and Barro," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(2), pages 454-485, April.
    9. Valentinyi, Ákos, 2001. "A tőkejövedelem optimális adóztatása [The optimal taxation of capital income]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 459-479.
    10. repec:zbw:rwirep:0140 is not listed on IDEAS
    11. Wolfram F. Richter, 2009. "Taxing Education in Ramsey's Tradition," Ruhr Economic Papers 0140, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    12. Christoph Braun, 2010. "Taxing Human Capital: A Good Idea," Ruhr Economic Papers 0202, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    13. Gian Maria Milesi-Ferretti & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," Working Papers 95-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    14. Chen, Been-Lon & Lu, Chia-Hui, 2013. "Optimal factor tax incidence in two-sector human capital-based models," Journal of Public Economics, Elsevier, vol. 97(C), pages 75-94.
    15. Koskela Erkki & Thadden Leopold von, 2008. "Optimal Factor Taxation under Wage Bargaining: A Dynamic Perspective," German Economic Review, De Gruyter, vol. 9(2), pages 135-159, May.
    16. Gerhard Glomm & Juergen Jung, 2013. "The Timing of Redistribution," Southern Economic Journal, John Wiley & Sons, vol. 80(1), pages 50-80, July.
    17. Lansing, Kevin J., 1999. "Optimal redistributive capital taxation in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 73(3), pages 423-453, September.
    18. Gross, Till & Klein, Paul, 2022. "Optimal tax policy and endogenous growth through innovation," Journal of Public Economics, Elsevier, vol. 209(C).
    19. Koskela Erkki & Thadden Leopold von, 2008. "Optimal Factor Taxation under Wage Bargaining: A Dynamic Perspective," German Economic Review, De Gruyter, vol. 9(2), pages 135-159, May.
    20. Reinhorn Leslie J., 2009. "Dynamic Optimal Taxation with Human Capital," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-21, October.
    21. Firouz Gahvari, 2012. "The Friedman Rule in a Model with Endogenous Growth and Cash‐in‐Advance Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 787-823, August.

    More about this item

    Keywords

    OLG model; endogenous growth; endogenous labour; education; and saving; intergenerational externalities; optimal taxation;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2982. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.