Optimal education policies under endogenous borrowing constraints

Min Wang ()

Economic Theory, 2014, vol. 55, issue 1, 135-159

Abstract: This paper studies optimal education policies under endogenous borrowing constraints in a standard life-cycle model. In a closed economy, a policy that appropriately bundles an education subsidy with an old-age pension can restore the complete market allocation. Such a policy also removes persistent indeterminacies and endogenous fluctuations that exist in its absence. In a small open economy, a similar policy may restore the complete market allocation for a wide range of parameters, a range much wider than previously believed. These results broaden the rationale for a two-armed welfare state (education and pension) to a large class of economies. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Borrowing constraints; Incentive compatibility; Education; Intergenerational transfer; E62; H52; H55; I28; O16 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (13)

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DOI: 10.1007/s00199-013-0743-5

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