Optimal policies, middle class development and human capital accumulation under elite rivalry

Elena Sochirca and Pedro Cunha Neves ()
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Elena Sochirca: NECE Research Unit
Pedro Cunha Neves: CEFAGE Research Unit

Eurasian Economic Review, 2020, vol. 10, issue 4, No 8, 727-744

Abstract: Abstract We build a dynamic model with endogenous middle class development, human capital accumulation, and policy choices, in order to analyze the interactions between the optimal policies implemented by the ruling elite and the key drivers of economic growth in the presence of elite rivalry. We consider that: (1) the specific policy choices depend on economic and political incentives of the elite; (2) the individuals’ decisions regarding their children’s education are endogenously determined by specific economic and political factors. Our results suggest that, contrarily to the economically motivated policies, the politically motivated policy choices imply inefficient economic outcomes and limit the development of the middle class and human capital accumulation. The results also show that higher middle class and human capital accumulation growth rates can lower the degree of elite rivalry by reducing the level of the optimal tax rate, increase public investments in education, and yield positive changes in all economic outcomes.

Keywords: Elite rivalry; Middle class; Public policy; Economic growth and development; Human capital (search for similar items in EconPapers)
JEL-codes: O1 O4 P16 P5 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40822-020-00150-5

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