Distributional Effects of Public Education in an Economy with Public Pensions

21 Pages Posted: 13 Jul 2003

See all articles by Gerhard Glomm

Gerhard Glomm

Indiana University Bloomington - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Michael Kaganovich

Indiana University Bloomington - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

We study how the allocation of government expenditures between two major outlays - education and pay-as-you-go social security - affects human capital distribution in an economy with heterogeneous agents. We consider an overlapping generations economy where the government maintains both programs, and allocates tax revenues to finance them. In our model, human capital is one of the factors of production. It is itself produced as a combined result of public inputs and private inputs. Parents' decisions to invest time and material resources in education of their children are motivated by altruism, heterogeneous in its strength across the population, which leads to heterogeneity of incomes. We investigate the effect of an increase in public funding for education on the human capital distribution. We show that in this framework, contrary to some earlier results, increased spending on public education may lead to higher inequality. Our results depend crucially on the interaction of education funding with the social security budget and on the elasticity of substitution in the learning technology.

Suggested Citation

Glomm, Gerhard and Kaganovich, Michael, Distributional Effects of Public Education in an Economy with Public Pensions. Available at SSRN: https://ssrn.com/abstract=422984

Gerhard Glomm (Contact Author)

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States
812-855-7256 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Michael Kaganovich

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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