Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/35956
Authors: 
Richter, Wolfram F.
Braun, Christoph
Year of Publication: 
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

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