The effects of compulsory schooling on growth, income distribution and welfare

Eckstein, Zvi; Zilcha, Itzhak

doi:10.1016/0047-2727(94)90040-x

Cited by 163 publications

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“…In conducting these, we pay particular attention to relating them to the relevant empirical evidence, and find that despite its parsimony the model performs well in this dimenstion. Section 7 concludes, while technical details are provided in the Appendix.6 There is also a vast literature that studies the relationship between public education and income distribution, to which this paper may also be related to by virtue of the common interest of examining the distributional effect of a productive public good in growth models, (e.g., Glomm and Ravikumar, 1992, 2003, Saint-Paul and Verdier, 1993, and Eckstein and Zilcha, 1994. Finally, it is also related to studies of the impact of the elasticity of substitution (between capital and labor) on growth; see e.g.…”

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confidence: 99%

Productive government spending and its consequences for the growth–inequality tradeoff

Getachew

Turnovsky

2015

Research in Economics

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This paper investigates the effects of productive government spending on the relationship between growth and inequality in an economy subject to idiosyncratic production shocks and heterogeneous endowments. Assuming lognormal distributions, we derive tractable closed form solutions describing the equilibrium dynamics. We show how the effect of government investment on the equilibrium dynamics of both inequality and growth depends crucially upon the elasticity of substitution between public and private capital in production. This has important consequences for the growth-and welfaremaximizing rates of government investment. Finally, we supplement our theoretical analysis with numerical simulations, calibrated to approximate the productive characteristics of a real world economy. With the empirical evidence strongly supporting the complementarity between public and private capital, our simulations suggest that conclusions based on the commonly employed Cobb-Douglas production function may be seriously misleading.Key words: Government investment; Idiosyncratic shocks; Growth; Inequality JEL Classification: D31, O41 Revised versionJune 2015*The paper has benefited from comments received on earlier versions from seminar participants at the University of Durham and the University of Pretoria. We also thank Santanu Chatterjee for useful suggestions. Research for this paper was carried out while Getachew was visiting the University of Washington in the Fall of 2013. Turnovsky"s research was supported in part by the Van Voorhis endowment at the University of Washington.**Corresponding author: sturn@u.washington.edu 1 IntroductionThe role of public investment in infrastructure as a source of economic growth continues to be widely debated in both developing and advanced economies, with different economies adopting different policy options. Several emerging-market countries including India, China, and Brazil have undertaken extensive public investment, to which their high growth rates of recent years may at least in part be attributed. In contrast, several European countries have reduced public spending, as they have pursued austerity measures intended to deal with concerns related to their rising debt levels.Contemporaneously with these diverse policies toward public investment, we have witnessed increasing income inequality, both in emerging markets and in most OECD countries. This raises the important question that we address in this paper, namely the relationship between public investment directed toward growth enhancement and its consequences for income inequality.Interest in the relationship between public investment, output, and growth has a long history, dating back to Arrow and Kurz (1970), who examined it in the context of a neoclassical economy.Beginning with Barro (1990), an extensive literature has evolved addressing the issue in an endogenous growth framework, with a general consensus that government spending on infrastructure can yield significant productivity gains and thus enhance growth. See e.g. F...

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Productive government spending and its consequences for the growth–inequality tradeoff

Getachew

Turnovsky

2015

Research in Economics

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“…In order to assess the effects of fiscal policy more neatly, the dynamic path experienced in a pure public regime -where education is entirely financed by the government -is compared with that obtained in a pure private regime, where young individuals pay their own education costs. Although the analysis is connected with the literature on growth and education financing (Glomm and Ravikumar, 1992;Eckstein and Zilcha, 1994;De Gregorio and Kim, 2000), the aim of this paper is not to discuss the desirability of a particular school system, but rather to describe the intergenerational consequences of alternative financing strategies within the public regime: the private system will be thought of as a comparable benchmark economy, by means of which the implications of different tax rules for growth and welfare can be discussed.…”

Section: The Modelmentioning

confidence: 99%

Tax Policy and Human Capital Formation with Public Investment in Education

Valente¹

2005

J. Econ.

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This paper studies the effects of distortionary taxes and public investment in an endogenous growth OLG model with knowledge transmission. Fiscal policy affects growth in two respects: first, work time reacts to variations of prospective tax rates and modifies knowledge formation; second, public spending enhances labour efficiency but also stimulates physical capital through increased savings. It is shown that Ramsey-optimal policies reduce savings due to high tax rates on young generations, and are not necessarily growth-improving with respect to a pure private system. Non-Ramsey policies that shift the burden on adults are always growth-improving due to crowding-in effects: the welfare of all generations is unambiguously higher with respect to a private system, and there generally exists a continuum of non-optimal tax rates under which long-run growth and welfare are higher than with the Ramsey-optimal policy.

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“…come inequality is explored theoretically by Glomm and Ravikumar (1992), Saint-Paul and Verdier (1993), Eckstein and Zilcha (1994) and Zhang (1996). 4 Braun (1988), Goodspeed (2000), Sylwester (2002) and Keller (2010) provide empirical evidence in favor of a negative relationship between public education expenditures and income inequality.…”

Section: Introductionmentioning

confidence: 99%

Public Education Expenditures, Growth and Income Inequality

Artige

Cavenaile

2016

SSRN Journal

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Public education expenditures are usually seen as having at least two desirable effects. On the one hand, it can foster economic growth through human capital accumulation. It can also decrease income inequality by offering every student the same learning opportunities. This paper studies both aspects of public education expenditures in a model of occupational choice with an endogenous supply of teachers. First, we show that the impact of public education expenditures on economic growth depends on the quality of teachers. The quality of the educational sector, in turn, depends on the level of public education expenditures as well as on the shape of the human capital distribution in the economy. In particular, we show that economies whose human capital distribution exhibits fatter tails can attract teachers of higher quality for the same level of public education spending. This implies that empirical studies aiming at identifying the role of public education expenditures should control for higher-order (beyond the mean) of the human capital distribution. Second, this paper documents a U-shaped relationship between public education spending and income inequality for a cross-section of countries as well as across US states. In our model of occupational choice, managers and workers are imperfect substitutes in production. Increasing public education expenditures * We are grateful to Jess Benhabib, Jaroslav Borovicka, William Easterly, Boyan Jovanovic, Bernard Lejeune, Simon Mongey, Klaus Prettner, Pau Roldan, Edouard Schaal, Alfonso Sousa-Poza and participants at the Economics seminar of the University Hohenheim for helpful comments and discussions.(through increased taxation) modifies occupational choice, supply and demand of workers. Whereas an increase in public education spending benefits all through an improvement of production efficiency, relative income gains at the top and bottom of the distribution depends on the reallocation of labor across occupations and changes in human capital distribution. The general equilibrium interaction between these different forces can result in a U-shaped relationship between the level of public education spending and income inequality. We calibrate our model on data from 8 OECD countries and show that some countries, among which the U.S., could spend more on public education to yield more income growth and less income inequality.

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The effects of compulsory schooling on growth, income distribution and welfare

Cited by 163 publications

References 14 publications

Productive government spending and its consequences for the growth–inequality tradeoff

Productive government spending and its consequences for the growth–inequality tradeoff

Tax Policy and Human Capital Formation with Public Investment in Education

Public Education Expenditures, Growth and Income Inequality

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