Public Financing of Education and Research in a Model of Endogenous Growth

Alessandra Pelloni

LABOUR, 1997, vol. 11, issue 3, 517-539

Abstract: We propose a two factor endogenous growth model in which the government intervenes in the economy by financing research and/or education. We allow technology in public production to be different from technology in private production, so that public spending has a direct effect on the rental prices of factors. We characterize both the unique balanced growth path and the transitional dynamics of the model showing the steady state equilibrium to be a saddle point. We also show that while income taxation is distortive, in general, a Pareto optimal outcome can be reached by means of a consumption tax in the decentralized setting.

Date: 1997
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