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Public Expenditure on Education and Skill Formation: Is There a Simple Rule to Maximize Skills?

Author

Listed:
  • Rossana Patrón

    () (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

  • Marcel Vaillant

    () (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

Abstract

The ratio of skill to unskilled labour stocks in the economy is widely acknowledged to have an important role for development. Can education policy affect the evolution of this ratio? This paper shows that it can, and it also shows that the actual effect of education policy depends on the allocation rule of the budget across educational levels. The consideration of a stylized hierarchical education model allows us to develop analytical conditions under which the allocation rule favours the accumulation of skills. The analysis has implication for policy makers in developing countries, where skill formation is much needed, because it shows that observed allocation rules usually violate the maximization condition by the assignment of higher-than-optimal resources to higher education.

Suggested Citation

  • Rossana Patrón & Marcel Vaillant, 2011. "Public Expenditure on Education and Skill Formation: Is There a Simple Rule to Maximize Skills?," Documentos de Trabajo (working papers) 0611, Department of Economics - dECON.
  • Handle: RePEc:ude:wpaper:0611
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    File URL: http://cienciassociales.edu.uy/departamentodeeconomia/wp-content/uploads/sites/2/2013/archivos/0611.pdf
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Driskill, Robert A & Horowitz, Andrew W, 2002. "Investment in Hierarchical Human Capital," Review of Development Economics, Wiley Blackwell, vol. 6(1), pages 48-58, February.
    3. Birdsall, Nancy & O'Connell, Lesley & Londoño de la Cuesta, Juan Luis, 1998. "Education in Latin America: demand and distribution are factors that matter," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    4. Chris Papageorgiou, 2003. "Distinguishing Between the Effects of Primary and Post-primary Education on Economic Growth," Review of Development Economics, Wiley Blackwell, vol. 7(4), pages 622-635, November.
    5. Robert Driskill & Andrew W. Horowitz & Fabio Méndez, 2009. "Hierarchical Human Capital and Economic Growth: Theory and Evidence," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(4), pages 723-743, December.
    6. Su, Xuejuan, 2006. "Endogenous determination of public budget allocation across education stages," Journal of Development Economics, Elsevier, vol. 81(2), pages 438-456, December.
    7. Gemmell, Norman, 1996. "Evaluating the Impacts of Human Capital Stocks and Accumulation on Economic Growth: Some New Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(1), pages 9-28, February.
    8. Su, Xuejuan, 2004. "The allocation of public funds in a hierarchical educational system," Journal of Economic Dynamics and Control, Elsevier, vol. 28(12), pages 2485-2510, December.
    9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Dosmagambet, Yergali, 2015. "Optimal policy for secondary education in developing countries," PFH Forschungspapiere/Research Papers 2015/01, PFH Private University of Applied Sciences, Göttingen.

    More about this item

    Keywords

    education budget; skills accumulation;

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I2 - Health, Education, and Welfare - - Education

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