Public sector and human capital: on the mechanics of economic development

Carlos Bethencourt and Fernando Perera-Tallo ()
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Fernando Perera-Tallo: Universidad de La Laguna

Journal of Economics, 2024, vol. 143, issue 1, No 1, 66 pages

Abstract: Abstract This paper proposes a theory about the allocation of human capital along the development process that helps to understand the controversial impact of this variable in growth regressions. We build a model in which human capital is allocated to three activities: production, tax collection (bureaucracy), and public education. At the first stage of development, countries have low effective tax rates because tax collection requires human capital, which is scarce. As countries accumulate human capital throughout the transition, the effective tax rate rises, diverting human capital from production to bureaucracy and public education. Consequently, at this stage, human capital has a weak impact on production, even when the human capital allocation is efficient. Furthermore, disparities in institutional quality may diminish the correlation between human capital and GDP.

Keywords: Economic growth; Human capital; Taxation; Public education (search for similar items in EconPapers)
JEL-codes: H52 I25 J24 O41 O43 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:143:y:2024:i:1:d:10.1007_s00712-024-00868-9

DOI: 10.1007/s00712-024-00868-9

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