Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth

Wolfram Richter and Christoph Braun

No 4629, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper studies second-best policies in an OLG model in which endogenous growth results from human capital accumulation. When young, individuals decide on education, saving, and nonqualified labour. When old, individuals supply qualified labour. Growth equilibria are inefficient in laissez-faire because of distortionary taxation. The inefficiency is exacerbated if selfish individuals externalize the positive effect of education on descendents' productivity. It is shown to be second best not to distort education if the human capital investment function is isoelastic. If the function is not isoelastic, a case is made for subsidizing education even relative to the first best.

Keywords: OLG model; endogenous growth; endogenous labour; education and saving; intergenerational externalities; optimal taxation (search for similar items in EconPapers)
JEL-codes: H21 I28 J24 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2009-12
New Economics Papers: this item is included in nep-dge, nep-edu, nep-fdg, nep-hrm and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth (2010)
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