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Capital Mobility, Fiscal Policy and Growth Under Self-Financing of Human Capital Formation

  • Buiter, Willem H.
  • Kletzer, Kenneth

This paper considers the effects of fiscal and financial policy on economic growth in open and closed economies, when human capital formation by young households is constrained by the illiquidity of human wealth. Both endogenous and exogenous growth versions of the basic OLG model are analysed. We find that intergenerational redistribution policies that discourage physical capital formation may encourage human capital formation. Despite common technologies and perfect international mobility of financial capital, the non-tradedness of human capital and the illiquidity of human wealth make for persistent differences in productivity growth rates (in the endogenous growth version of the model) or in their levels (in the exogenous growth version). We also consider the productivity growth (or level) effects of public spending on education and of the distortionary taxation of financial asset income.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1179.

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Date of creation: May 1995
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Handle: RePEc:cpr:ceprdp:1179
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  1. Buiter, Willem H, 1981. "Time Preference and International Lending and Borrowing in an Overlapping-Generations Model," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 769-97, August.
  2. Barro, R.J. & Mankiw, N.G. & Sala-i-Martin, X., 1992. "Capital Mobility in Neoclassical Models of Growth," Papers 655, Yale - Economic Growth Center.
  3. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
  4. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
  5. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  6. Paul M. Romer, 1989. "Human Capital And Growth: Theory and Evidence," NBER Working Papers 3173, National Bureau of Economic Research, Inc.
  7. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  8. Robert J. Barro & Xavier Sala-i-Martin, 1991. "Convergence across States and Regions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
  9. Gary S. Becker, 1975. "Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, Second Edition," NBER Books, National Bureau of Economic Research, Inc, number beck75-1, December.
  10. 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.
  11. Buiter, W.H. & Kletzer, K.M., 1990. "Fiscal Policy Interdependence And Efficiency," Papers 611, Yale - Economic Growth Center.
  12. Barro, Robert J. & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," CEPR Discussion Papers 630, C.E.P.R. Discussion Papers.
  13. Grossman, Gene M & Helpman, Elhanan, 1990. "Comparative Advantage and Long-run Growth," American Economic Review, American Economic Association, vol. 80(4), pages 796-815, September.
  14. Helpman, Elhanan & Grossman, Gene M., 1989. "Product Development and International Trade," Scholarly Articles 3445094, Harvard University Department of Economics.
  15. Hart, Oliver & Moore, John, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 841-79, November.
  16. Alogoskoufis, George S. & van der Ploeg, Frederick, 1991. "On budgetary policies, growth, and external deficits in an interdependent world," Journal of the Japanese and International Economies, Elsevier, vol. 5(4), pages 305-324, December.
  17. Jones, Larry E. & Manuelli, Rodolfo E., 1992. "Finite lifetimes and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 171-197, December.
  18. Nouriel Roubini & Gian Maria Milesi-Ferrett, 1994. "Optimal Taxation of Human and Physical Capital in Endogenous Capital Models," NBER Working Papers 4882, National Bureau of Economic Research, Inc.
  19. Douglas D. Purvis, 1975. "Human Capital and the Financial Portfolio," Working Papers 177, Queen's University, Department of Economics.
  20. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-94, June.
  21. Michael S. McPherson & Morton Owen Schapiro & Lori G. Kletzer & Jere R. Behrman, 1992. "The College Investment Decision: Direct and Indirect Effects of Family Background on Choice of Postsecondary Enrollment and Quality," Williams Project on the Economics of Higher Education DP-18, Department of Economics, Williams College.
  22. B. Douglas Bernheim & Kyle Bagwell, 1989. "Is Everything Neutral?," NBER Working Papers 2086, National Bureau of Economic Research, Inc.
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