Fiscal policy in an endogenous growth model with human capital and heterogenous agents (original) (raw)
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2021
With this paper our objective is to study the effects of different deficit policies in an endogenous growth model with publicly funded human capital accumulation and public debt, where we allow for heterogeneous households. Two types of households are considered. One household acquires human capital or skills through education while the other household remains low-skilled. Aggregate production is given by function with physical capital and labor as input factors, where total labor input is modeled by a CES function with high-skilled labor as arguments. The government can run into debt, but, the primary surplus is a positive function of public debt which guarantees that public debt is sustainable. We study the characteristics and stability of the steady state and we investigate the effects of fiscal policy with regard to long-run growth and the distribution of welfare of the two households. Further, we analyze growth and welfare effects of switching from a balanced government budget ...
This paper presents a three-sector model of endogenous growth with physical and human capital accumulation. We integrated the two extreme approaches used in the preceding literature to design the process of human capital accumulation. In this paper, the accumulation of human capital is a home production in which individuals combines their non-working time with market educational goods. This new characterization of human capital accumulation provides a framework that permits a complete fiscal policy analysis. Unlike the preceding literature, we can analyze how fiscal policy affects to all individuals' margins of decision regarding to human capital accumulation. We obtain that the way in which individuals combine educational goods and schooling time determines the impact that fiscal policy has in both the stability property of the equilibrium and in the long-run growth rate.
Economic Policy in a Growth Model with Human Capital, Heterogenous Agents and Unemployment
Computational Economics, 2009
In this paper we present an endogenous growth model with human capital, heterogenous agents and unemployment. Two types of households are considered. One household acquires human capital or skills through education while the other household remains low-skilled. Sustained growth is the result of human capital accumulation which is a function of the existing human capital employed in the educational sector and of public spending for teaching materials. Both households are affected by unemployment and, if so, receive unemployment benefits. The government levies an income tax and uses its revenues to pay unemployment benefits, to finance transfers to the low-skilled household and to finance human capital accumulation. The paper studies growth and welfare effects of economic policy and presents a stability analysis of the model.
Fiscal Policy in an Endogenous Growth Model with Productive Government Spending
Metroeconomica, 1999
The goal of this paper is to analyse the effects of ®scal policy upon the long-run balanced growth rate in an endogenous growth model in which sustained per capita growth is the result of productive government spending. Assuming that labour is supplied inelastically, it is shown that increases in non-productive government spending, i.e. public consumption or lump-sum transfers, always reduce the balanced growth rate, whereas there exists a growth-maximizing investment subsidy rate and income tax rate. Moreover, a rise in a tax on consumption increases economic growth if it raises public investment. If labour supply is elastic the elasticity of labour supply crucially determines the growth-maximizing income tax rate and an increase in the tax on consumption may raise or lower economic growth. Ã I thank two anonymous referees for detailed comments on an earlier version. Financial support from the Deutsche Forschungsgemeinschaft (DFG) is gratefully acknowledged.
Fiscal policy in an endogenous-growth model with public investment: A note
Journal of Economics Zeitschrift f�r National�konomie, 1998
This note extends the basic endogenous-growth model by Barro [Journal of Political Economy (1990) 98: S 103-S 125]. It is supposed that the government pays lump-sum transfers to the representative household or levies a lump-sum tax, besides financing public investment. Growth and welfare effects of fiscal policy are studied for the competitive economy and the growth rate of the social optimum is compared with the one of the competitive economy.
Capital mobility, fiscal policy and growth with self-financing of human capital formation
Exp Appl Acarol, 1995
Capital Mobility, Fiscal Policy and Growth Under Self-Financing of Human Capital Formation* This paper considers the effects of fiscal and financial policy on economic growth in open and closed economies, when human capital formation by young households is constrained by the illiquidity of human wealth. Both endogenous and exogenous growth versions of the basic OLG model are analysed. We find that intergenerational redistribution policies that discourage physical capital formation may encourage human capital formation. Despite common technologies and perfect international mobility of financial capital, the non-tradedness of human capital and the illiquidity of human wealth make for persistent differences in productivity growth rates (in the endogenous growth version of the model) or in their levels (in the exogenous growth version). We also consider the productivity growth (or level) effects of public spending on education and of the distortionary taxation of financial asset income.
Growth and Welfare Effects of Fiscal Policy in an Endogenous Growth Model with Public Investment
International Tax and Public Finance - INT TAX PUBLIC FINANC, 1998
In this paper we analyze growth and welfare effects of fiscal policy in an endogenous growth model along the balanced growth path. As to the model we assume that sustained per capita growth results from public investment. The government uses its tax revenue for investment in public capital, for investment subsidy and for transfer payments. We then analyze how the balanced growth rate reacts to variations in those policy variables. Further, we study welfare effects of varying the fiscal parameters and demonstrate that, in general, maximizing economic growth is not equivalent to maximizing welfare on the balanced growth path.
Human Capital accumulation, policy and growth
This paper examines the general equilibrium implications of the Decentralized Education (DE) and Centralized Public Education (CPE) systems for growth and welfare in an overlapping generations growth model, where the economy-wide human capital stock generates positive externalities for each individual. Under DE, each individual agent chooses his/her human capital to maximize his/her utility function by treating the economy-wide human capital as a public good. Under CPE the economy-wide human capital can be augmented by government intervention in the form of public expenditures on education …nanced by distortionary income taxes. A benevolent …scal authority chooses a uniform tax rate, and the associated expenditure on public education subject to the competitive decentralized equilibrium. It is shown that Centralized Public Education is welfare superior to decentralized education for all values of the preference parameter over total human capital bequests and initial human capital. Furthermore, CPE dominates DE for all but very high values of total human capital externalities. So, even when we abstract from equity considerations, Centralized Public Education may be supported on welfare grounds.
THE ROLE OF FISCAL POLICY IN HUMAN DEVELOPMENT AND GROWTH
This paper develops a dynamic intertemporal general equilibrium model of a small open economy that incorporates and endogenizes human development and also various indicators of social progress. The model is calibrated to 15 Latin American economies to study the effect of marginal increases in different types of useful and wasteful public expenditures under alternative financing schemes. The model seeks to provide quantitative policy assessments to guide government spending/financing decisions when policymakers pursue a specific objective such as growth, welfare, human development or social progress. The estimates presented in this paper indicate that infrastructure spending dominates other forms of public spending (education, health, government consumption and transfers to low-wealth households) in terms of sizable positive effects on growth performance, welfare, human development and social progress. JEL Classification: E62, H2, H5, H63