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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
Date of revision:
Handle: RePEc:cpr:ceprdp:1179
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  1. B. Douglas Bernheim & Kyle Bagwell, 1986. "Is Everything Neutral?," NBER Working Papers 2086, National Bureau of Economic Research, Inc.
  2. Barro, R. & Mankiw, G., 1992. "Capital Mobility in Neoclassical Models of Growth," Harvard Institute of Economic Research Working Papers 1615, Harvard - Institute of Economic Research.
  3. Larry E. Jones & Rodolfo E. Manuelli, 1990. "Finite Lifetimes and Growth," NBER Working Papers 3469, National Bureau of Economic Research, Inc.
  4. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Public Finance in Models of Economic Growth," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 645-61, October.
  5. Oliver Hart & John Moore, 1991. "A Theory of Debt Based on the Inalienability of Human Capital," NBER Working Papers 3906, National Bureau of Economic Research, Inc.
  6. Gene M. Grossman & Elhanan Helpman, 1988. "Product Development and International Trade," NBER Working Papers 2540, National Bureau of Economic Research, Inc.
  7. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. Willem H. Buiter & Kenneth M. Kletzer, 1990. "Fiscal Policy Interdependence and Efficiency," NBER Working Papers 3328, National Bureau of Economic Research, Inc.
  13. 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.
  14. Paul M. Romer, 1989. "Human Capital And Growth: Theory and Evidence," NBER Working Papers 3173, National Bureau of Economic Research, Inc.
  15. Gene M. Grossman & Elhanan Helpman, 1989. "Comparative Advantage and Long-Run Growth," NBER Working Papers 2809, National Bureau of Economic Research, Inc.
  16. repec:tpr:qjecon:v:109:y:1994:i:4:p:841-79 is not listed on IDEAS
  17. repec:cep:stitep:/1991/233 is not listed on IDEAS
  18. 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.
  19. Douglas D. Purvis, 1975. "Human Capital and the Financial Portfolio," Working Papers 177, Queen's University, Department of Economics.
  20. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
  21. 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.
  22. Willem H. Buiter, 1979. "Time Preference and International Lending and Borrowing in an Overlapping-Generations Model," NBER Working Papers 0352, National Bureau of Economic Research, Inc.
  23. repec:oup:qjecon:v:105:y:1990:i:2:p:501-26 is not listed on IDEAS
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  25. 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.
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