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Investment in Human Capital in a Macrodynamic Framework: Redistributive Taxation, Public Debt and Welfare


  • Leandro Gonçalves do Nascimento


Efficient investment in human capital is a subject of great concern among economists. By means of an overlapping-generations macrodynamic model with credit constraints, imperfect insurance and exogenous labor supply, we appraise inefficiencies related to misinvestment in human capital and propose a simple scheme of redistributive taxation to mitigate them. A numerical simulation is calibrated in order to match stylized facts of the quite unequal Brazilian economy and shows that, in steady-state, with a flat-tax mechanism and lump-sum transfers, government intervention is beneficial to the extent it maximizes our utilitarian measure of welfare and reduces both inefficiency associated with misdirected investment in human capital and standard inequality indexes. After considering the possibility of decomposing our utilitarian measure of welfare and of allowing for public debt, we show that reduced inequality is the driving force which accounts for welfare improvement and that public debt plays no role. Robustness analysis shows that endogenizing labor supply does not lead to substantial changes in previous results

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  • Leandro Gonçalves do Nascimento, 2004. "Investment in Human Capital in a Macrodynamic Framework: Redistributive Taxation, Public Debt and Welfare," Econometric Society 2004 North American Summer Meetings 539, Econometric Society.
  • Handle: RePEc:ecm:nasm04:539

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    References listed on IDEAS

    1. Gomes, Joao & Greenwood, Jeremy & Rebelo, Sergio, 2001. "Equilibrium unemployment," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 109-152, August.
    2. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 659-684.
    3. Lance Lochner & Alexander Monge-Naranjo, 2002. "Human Capital Formation with Endogenous Credit Constraints," NBER Working Papers 8815, National Bureau of Economic Research, Inc.
    4. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
    5. Floden, Martin, 2001. "The effectiveness of government debt and transfers as insurance," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 81-108, August.
    6. Val, Paulo Rogério da Costa & Ferreira, Pedro Cavalcanti, 2002. "Modelos de ciclos reais de negócios aplicados à economis brasileira," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 438, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    7. Ferreira, Pedro Cavalcanti & Cunha, Bárbara Vasconcelos Boavista da, 2003. "Custo de ciclo econômico no Brasil em um modelo com restrição a crédito," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 471, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    8. Aiyagari, S. Rao & Greenwood, Jeremy & Seshadri, Ananth, 2002. "Efficient Investment in Children," Journal of Economic Theory, Elsevier, vol. 102(2), pages 290-321, February.
    9. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-417, June.
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    More about this item


    investment in human capital; idiosyncratic risk; efficiency; overaccumulation of capital; redistributive taxation; public debt; welfare measures; social insurance.;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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