Distributional Effects of Public Education in an Economy with Public Pensions
21 Pages Posted: 13 Jul 2003
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Alternative Social Security Systems and Growth
By Michael Kaganovich and Itzhak Zilcha
-
By Stephane Lambrecht, Philippe Michel, ...
-
An Analysis of Fiscal Policy Under Operative and Inoperative Bequest Motives
-
On the Political Economy of Social Security and Public Education
-
Fiscal Sustainability and Public Debt in an Endogenous Growth Model
-
Fiscal Rules and Sustainability of Public Finances in an Endogenous Growth Model
-
Intergenerational Altruism and Neoclassical Growth Models
By Philippe Michel, Emmanuel Thibault, ...