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Title:Efficient subsidization of human capital accumulation with overlapping generations and endogenous growth PDF Logo
Authors:Richter, Wolfram F.
Braun, Christoph
Issue Date:2009
Series/Report no.:IZA Discussion Papers 4629
Abstract:This paper studies second-best policies in an OLG model in which endogenous growth results from human capital accumulation. When young, individuals decide on education, saving, and nonqualified labour. When old, individuals supply qualified labour. Growth equilibria are inefficient in laissez-faire because of distortionary taxation. The inefficiency is exacerbated if selfish individuals externalize the positive effect of education on descendents' productivity. It is shown to be second best not to distort education if the human capital investment function is isoelastic. If the function is not isoelastic, a case is made for subsidizing education even relative to the first best.
Subjects:OLG model
endogenous growth
endogenous labour
education and saving
intergenerational externalities
optimal taxation
JEL:H21
I28
J24
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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