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Welfare Implications of Public Education Spending Rules

39 Pages Posted: 9 Jan 2009  

Konstantinos Angelopoulos

Athens University of Economics and Business - Department of International and European Economic Studies

Jim Malley

University of Glasgow - Department of Economics

Apostolis Philippopoulos

Athens University of Economics and Business - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); University of Essex

Date Written: December 1, 2008

Abstract

In this paper, we quantitatively assess the welfare implications of alternative public education spending rules. To this end, we employ a dynamic stochastic general equilibrium model in which human capital externalities and public education expenditures, financed by distorting taxes, enhance the productivity of private education choices. We allow public education spending, as share of output, to respond to various aggregate indicators in an attempt to minimize the market imperfection due to human capital externalities. We also expose the economy to varying degrees of uncertainty via changes in the variance of total factor productivity shocks. Our results indicate that, in the face of increasing aggregate uncertainty, active policy can significantly outperform passive policy (i.e. maintaining a constant public education to output ratio) but only when the policy instrument is successful in smoothing the growth rate of human capital.

Keywords: education spending, growth, welfare

JEL Classification: A00, E60, E62

Suggested Citation

Angelopoulos, Konstantinos and Malley, Jim and Philippopoulos, Apostolis, Welfare Implications of Public Education Spending Rules (December 1, 2008). CESifo Working Paper Series No. 2510. Available at SSRN: https://ssrn.com/abstract=1324572

Konstantinos Angelopoulos (Contact Author)

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece

Jim Malley

University of Glasgow - Department of Economics ( email )

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom
+44 141 330 4617 (Phone)
+44 141 330 4940 (Fax)

HOME PAGE: http://www.gla.ac.uk/economics/malley/

Apostolis Philippopoulos

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+301 322 3187 (Phone)

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