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Optimal education and pensions in an endogenous growth model

  • DEL REY, Elena


    (Universitat de Girona, Spain)

  • LOPEZ-GARCIA, Miguel


    (Universitat Autonoma de Barcelona, Spain)

It is well known that, in OLG economies with life-cycle saving and exogenous growth, competitive equilibria will in general fail to achieve optimality and may even be dynamically inefficient. This is a consequence of individuals accumulating amounts of physical capital that differ from the level which would maximize welfare along a balanced growth path (the Golden Rule). With human capital, a second potential source of departure from optimality arises, to wit: individuals may not choose the correct amount of education investment. However, the Golden Rule concept, widely used in exogenous growth frameworks, has not found its way into endogenous growth models. In this paper, we propose to recover the Golden Rule of physical and also human capital accumulation. The optimal policy to decentralize the Golden Rule balanced growth path when there are no constraints for individuals to finance their education investments is also characterized. It is shown that it involves positive pensions and negative education subsidies (i.e., taxes)

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2009079.

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Date of creation: 01 Dec 2009
Date of revision:
Handle: RePEc:cor:louvco:2009079
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  1. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  2. DOCQUIER, Frédéric & PADDISON, Oliver & PESTIEAU, Pierre, . "Optimal accumulation in an endogenous growth setting with human capital," CORE Discussion Papers RP 2021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
  4. Elena Del Rey & Miguel-Angel Lopez-Garcia, 2012. "On Welfare Criteria and Optimality in an Endogenous Growth Model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(6), pages 927-943, December.
  5. Michele Boldrin & Ana Montes, 2004. "The intergenerational state: education and pensions," Staff Report 336, Federal Reserve Bank of Minneapolis.
  6. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  7. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  8. Samuelson, Paul A, 1975. "Optimum Social Security in a Life-Cycle Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(3), pages 539-44, October.
  9. Samuelson, Paul A, 1975. "The Optimum Growth Rate for Population," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(3), pages 531-38, October.
  10. Caballe, Jordi, 1995. "Endogenous Growth, Human Capital, and Bequests in a Life-Cycle Model," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 156-81, January.
  11. repec:tpr:qjecon:v:105:y:1990:i:2:p:501-26 is not listed on IDEAS
  12. 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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