Human Capital, Economic Growth, and Public Expenditure

Carlos Bethencourt and Fernando Perera-Tallo
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Fernando Perera-Tallo: Asian Development Bank Institute

No 1066, ADBI Working Papers from Asian Development Bank Institute

Abstract: To understand the weak empirical relationship between human capital and macroeconomic performance, we present a model in which human capital is allocated to three activities: production, tax collection (bureaucracy), and public education. The effective tax rate is low in poor countries because tax collection requires human capital, which is scarce. Throughout the transition, the effective tax rate rises, which involves a diversion of human capital from production to bureaucracy and public education. Consequently, human capital has a weak effect on production, even when human capital is efficiently allocated. Differences in institutional quality may involve a spurious negative correlation between gross domestic product and human capital.

Keywords: economic growth; human capital; bureaucracy; public education (search for similar items in EconPapers)
JEL-codes: D73 I20 O15 O42 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2020-01-09
New Economics Papers: this item is included in nep-gro
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Citations: View citations in EconPapers (1)

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