Capital Mobility, Fiscal Policy, and Growth under Self-Financing of Human Capital Formation

Willem Buiter and Kenneth Kletzer

Canadian Journal of Economics, 1995, vol. 28, issue s1, 163-94

Abstract: This paper, which is to appear in a volume honoring the memory of Doug Purvis, considers the effects of fiscal and financial policy on economic growth in open and closed economies, when human capital formation by young households is constrained by the illiquidity of human wealth. Both endogeneous and exogenous growth versions of the basic OLG model are analysed. We find that intergenerational redistribution policies that discourage physical capital formation may encourage human capital formation. Despite common technologies and perfect international mobility of financial capital, the non-tradedness of human capital and the illiquidity of human wealth make for persistent differences in productivity growth rates (in the endogenous growth version of the model) or in their levels (in the exogenous growth version). We also consider the productivity growth (or level) effects of public spending on education and of the distortionary taxation of financial asset income.

Date: 1995
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Working Paper: Capital Mobility, Fiscal Policy and Growth Under Self-Financing of Human Capital Formation (1995)
Working Paper: Capital Mobility, Fiscal Policy and Growth under Self-Financing of Human Capital Formation (1995)
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