Welfare Implications of Public Education Spending Rules

Konstantinos Angelopoulos (), Jim Malley and Apostolis Philippopoulos

No 2510, CESifo Working Paper Series from CESifo

Abstract: In this paper, we quantitatively assess the welfare implications of alternative public education spending rules. To this end, we employ a dynamic stochastic general equilibrium model in which human capital externalities and public education expenditures, financed by distorting taxes, enhance the productivity of private education choices. We allow public education spending, as share of output, to respond to various aggregate indicators in an attempt to minimize the market imperfection due to human capital externalities. We also expose the economy to varying degrees of uncertainty via changes in the variance of total factor productivity shocks. Our results indicate that, in the face of increasing aggregate uncertainty, active policy can significantly outperform passive policy (i.e. maintaining a constant public education to output ratio) but only when the policy instrument is successful in smoothing the growth rate of human capital.

Keywords: education spending; growth; welfare (search for similar items in EconPapers)
JEL-codes: A00 E60 E62 (search for similar items in EconPapers)
Date: 2008
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Related works:
Working Paper: Welfare Implications of Public Education Spending Rules (2008)
Working Paper: Welfare implications of public education spending rules (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2510

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