Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth

36 Pages Posted: 1 Apr 2010

See all articles by Wolfram F. Richter

Wolfram F. Richter

TU Dortmund University; CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Christoph Braun

University of Dortmund - Ruhr Graduate School in Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2010

Abstract

This paper studies second best policies for education, saving, and labour in an OLG model in which endogenous growth results from human capital accumulation. Government expenditures have to be financed by linear instruments so that growth equilibria are inefficient. The inefficiency is exacerbated if selfish individuals externalize the positive effect of education on descendents’ productivity. It is shown to be second best to subsidize education even relative to the first best if the elasticity of the human capital investment function is strictly increasing.

Keywords: OLG model, endogenous growth, endogenous labour, education, and saving, intergenerational externalities, optimal taxation

JEL Classification: H21, I28, J24

Suggested Citation

Richter, Wolfram F. and Braun, Christoph, Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth (March 2010). Available at SSRN: https://ssrn.com/abstract=1571061 or http://dx.doi.org/10.2139/ssrn.1571061

Wolfram F. Richter (Contact Author)

TU Dortmund University ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Institute for the Study of Labor (IZA)

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Christoph Braun

University of Dortmund - Ruhr Graduate School in Economics ( email )

Dortmund, 44221
Germany

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