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Public education spending, sectoral taxation and growth

Author

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  • Marion Davin

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper examines the interplay between public education expenditure and economic growth in a two-sector model with manufactured goods and services. When public education is financed by sectoral taxes, the education policy maximizing the growth rate differs from that obtained by the standard unisectoral tax. The reasons for this are twofold. First, because agents' preferences for services, human capital and savings become a major determinant of the relationship between growth and public education expenditure. Second, because education spending is a service and hence sectoral taxation creates a distortion by affecting its relative price. Finally, we reveal that a sectoral tax may perform better than a standard aggregate production tax in terms of long-term growth.

Suggested Citation

  • Marion Davin, 2014. "Public education spending, sectoral taxation and growth," Post-Print hal-01474256, HAL.
    • Handle: RePEc:hal:journl:hal-01474256
    DOI: 10.3917/redp.244.0553
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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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