IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Government spending on education, human capital accumulation, taxes and growth: a multisector dynamic general equilibrium analysis

Listed author(s):
  • Yazid Dissou
  • Selma Didic

It is now well accepted in both academic and policy worlds that human capital accumulation plays a significant role in the increase of standards of living in different countries. Education is a primary source of human capital and is a key aspect in public policies to develop human capital. From a theoretical perspective, several papers have provided insights into the mechanisms through which education promotes economic growth and development. On the one side, education, by imparting skills directly increases the capacity of workers as a factor of production to produce more output. On the other side, education produces a “ripple effect” throughout the economy through a series of positive externalities. Because of the wedge between private and social returns to education, the government provides funding for schooling activities through it spending on education. Yet, this spending has a direct impact on the productivity of human capital accumulation and has, hence, an impact on the growth rate of the economy. In this paper, we assess numerically the growth, welfare and sectoral implications of different methods of financing the increase in government spending on education. We develop a multisector small open economy model with endogenous growth in which human capital accumulation is a key engine of growth. In our model, the representative consumer allocates her time endowment between leisure, work and learning activities. In a situation where the increase in government spending on education is financed through distortionary labour income taxes that affect the time devoted to non-leisure activities, two opposite impacts might occur. On the one hand, the increase in government spending is beneficial to growth, but on the other hand, the tax increase has a detrimental effect on growth as it reduces the opportunity cost of leisure and reduces savings. The evaluation of the impact of government spending on education on the economy is all the more important in a multisector context where not all sectors are equally human-capital intensive. In contrast to most general equilibrium models, our model allows for sectoral wage heterogeneity. Our modeling results will shed light on the benefits and cost of alternative methods for funding public spending on education. See above See above

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ecomod.net/system/files/The_Full_Education_Model_June_2012.pdf
Download Restriction: no

Paper provided by EcoMod in its series EcoMod2012 with number 4540.

as
in new window

Length:
Date of creation: 01 Jul 2012
Handle: RePEc:ekd:002672:4540
Contact details of provider: Postal:
351 Pleasant Street, #357, Northampton MA 01060-3900 USA

Phone: +1 413 586 3203
Fax: +1 413 517 0900
Web page: http://www.ecomod.net

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Ghiglino, Christian, 2002. "Introduction to a General Equilibrium Approach to Economic Growth," Journal of Economic Theory, Elsevier, vol. 105(1), pages 1-17, July.
  2. Erin Yeldan & Ebru Voyvoda, 2000. "Financing of Public Education in a Debt Constrained Economy : Investigation of Fiscal Alternatives in an OLG Model of Endogenous Growth for Turkey," Working Papers 0013, Department of Economics, Bilkent University.
  3. Vladimir Kuhl Teles, 2008. "Public investment in basic education and economic growth," Journal of Economic Studies, Emerald Group Publishing, vol. 35(4), pages 352-364, September.
  4. Tiago Sequeira & Elsa Martins, 2008. "Education public financing and economic growth: an endogenous growth model versus evidence," Empirical Economics, Springer, vol. 35(2), pages 361-377, September.
  5. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
  6. Gerhard Glomm & B. Ravikumar, 1998. "Flat-Rate Taxes, Government Spending on Education, and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 306-325, January.
  7. Verbic, Miroslav & Majcen, Boris & Cok, Mitja, 2009. "Education and Economic Growth in Slovenia: A Dynamic General Equilibrium Approach with Endogenous Growth," MPRA Paper 17817, University Library of Munich, Germany.
  8. Glomm, Gerhard & Ravikumar, B., 1997. "Productive government expenditures and long-run growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 183-204, January.
  9. Annabi, Nabil & Harvey, Simon & Lan, Yu, 2011. "Public expenditures on education, human capital and growth in Canada: An OLG model analysis," Journal of Policy Modeling, Elsevier, vol. 33(6), pages 852-865.
  10. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
  11. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
  12. Richard Blundell & Lorraine Dearden & Costas Meghir & Barbara Sianesi, 1999. "Human capital investment: the returns from education and training to the individual, the firm and the economy," Fiscal Studies, Institute for Fiscal Studies, vol. 20(1), pages 1-23, March.
  13. James Heckman & Lance Lockner & Christopher Taber, 1999. "Human capital formation and general equilibrium treatment effects: a study of tax and tuition policy," Fiscal Studies, Institute for Fiscal Studies, vol. 20(1), pages 25-40, March.
  14. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 11-44, August.
  15. James Davies & John Whalley, 1991. "Taxes and Capital Formation: How Important is Human Capital?," NBER Chapters,in: National Saving and Economic Performance, pages 163-200 National Bureau of Economic Research, Inc.
  16. World Bank, 2009. "Benin - Constraints to Growth and Potential for Diversification and Innovation : Country Economic Memorandum," World Bank Other Operational Studies 3078, The World Bank.
  17. Doménech Rafael & García Jose Ramón, 2002. "Optimal Taxation and Public Expenditure in a Model of Endogenous Growth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 2(1), pages 1-26, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ekd:002672:4540. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Theresa Leary)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.