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Can more education be bad? Some simple analytics on financing education

  • Rossana Patrón

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

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    The evidence of effects of education activities on growth is mixed. So, could education be good, neutral, or bad, depending on the case? While the model in this paper remains close to the Heckscher-Ohlin tradition, it is shown that, contrary to the standard results, it is the net effect of prices, taxation, and accumulation of endowments that determines the Rybczynski-type growth effects, which may help explain the lack of consensus in the empirical literature on education and growth. A central feature of the model is that the accumulation of endowments depends on the output of education, while the changes in labour supply, which determine the effective production possibilities frontier, also depend on individuals’ decisions on allocation of time. In the paper, the risks of a labour supplyreducing government intervention are discussed. The analysis has implications for policymakers in developing countries where education needs to be enhanced, as it reveals the possibility of a ‘bad tax reform’ where the intentions of reformers are not met by the results. A sufficient condition to avoid this situation is identified in the paper.

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    File URL: http://decon.edu.uy/publica/2009/1709.pdf
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    Paper provided by Department of Economics - dECON in its series Documentos de Trabajo (working papers) with number 1709.

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    Length: 16 pages
    Date of creation: Sep 2009
    Date of revision:
    Handle: RePEc:ude:wpaper:1709
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    1. Temple, Jonathan, 2001. "Growth Effects of Education and Social Capital in the OECD Countries," CEPR Discussion Papers 2875, C.E.P.R. Discussion Papers.
    2. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
    3. 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.
    4. Hanushek, Eric A., 2002. "Publicly provided education," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 30, pages 2045-2141 Elsevier.
    5. Blankenau, William F. & Simpson, Nicole B., 2004. "Public education expenditures and growth," Journal of Development Economics, Elsevier, vol. 73(2), pages 583-605, April.
    6. William F. Blankenau & Nicole B. Simpson & Marc Tomljanovich, 2007. "Public Education Expenditures, Taxation, and Growth: Linking Data to Theory," American Economic Review, American Economic Association, vol. 97(2), pages 393-397, May.
    7. Eric A. Hanushek, 1979. "Conceptual and Empirical Issues in the Estimation of Educational Production Functions," Journal of Human Resources, University of Wisconsin Press, vol. 14(3), pages 351-388.
    8. Eric A. Hanushek, 2004. "Some Simple Analytics of School Quality," NBER Working Papers 10229, National Bureau of Economic Research, Inc.
    9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    10. Rosalind Levacic & Anna Vignoles, 2002. "Researching the Links between School Resources and Student Outcomes in the UK: A Review of Issues and Evidence," Education Economics, Taylor & Francis Journals, vol. 10(3), pages 313-331.
    11. Benedict J. Clements, 1999. "The Efficiency of Education Expenditure in Portugal," IMF Working Papers 99/179, International Monetary Fund.
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