Government Debt and Education Subsidies by Synthesizing the Uzawa-Lucas Two-Sector Model and Diamond Growth-Debt Model

Wei-Bin Zhang

Zeitschrift für interdisziplinäre ökonomische Forschung, 2017, issue 1, 22-33

Abstract: The purpose of this paper is to study dynamic relationships between economic growth and government debts with endogenous wealth and human capital accumulation. We extend the Uzawa-Lucas twosector growth model by introducing the government debt and the three sources of human capital accumulation, Arrow's learning by doing, Uzawa's learning by education, and Zhang's creative leisure. The model emphasizes the role of government's education subsidy policies on economic growth and the dynamics of government debt. It synthesizes the Uzawa-Lucas two sector and the Diamond model with Zhang's approach to household behavior. The model introduces various taxes on different economic agents. Education is financially supported by public subsidies and the household. We simulate the model to demonstrate existence of an equilibrium point and motion of the dynamic system. We also examine effects of changes in some parameters. As the system is unstable, we conduct comparative dynamic analysis in the short term.

Keywords: Uzawa-Lucas model; Diamond model; learning by consuming; government debt; propensity to receive education (search for similar items in EconPapers)
JEL-codes: I28 O41 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ris:zfioef:0092

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