The costs of education, longevity and the poverty of nations

Pedro Ferreira and Samuel de Abreu Pessôa

No 472, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: This paper explores the distortions on the cost of education, associated with government policies and institutional factors, as an additional determinant of cross-country income differences. Agents are finitely lived and the model takes into account life-cycle features of human capital accumulation. There are two sectors, one producing goods and the other providing educational services. The model is calibrated and simulated for 89 economies. We find that human capital taxation has a relevant impact on incomes, which is amplified by its indirect effect on returns to physical capital. Life expectancy plays an important role in determining long-run output: the expansion of the population working life increases the present value of the flow of wages, which induces further human capital investment and raises incomes. Although in our simulations the largest gains are observed when productivity is equated across countries, changes in longevity and in the incentives to educational investment are too relevant to ignore.

Date: 2003-01-03
New Economics Papers: this item is included in nep-hea
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:fgv:epgewp:472

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