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Endogenous growth and welfare effects of education subsidies and intergenerational transfers

We consider an overlapping generations model with endogenous growth and embrace the Two-Part Golden Rule criterion to analyze the welfare effects of intergenerational transfers and education subsidies. The results are compared with those obtained within the well-known exogenous growth framework. In both cases, pay-as-you-go social security enhances welfare if the growth rate is larger than the interest rate at the laissez-faire. However, with endogenous growth, pay-as-you-go social security may also increase welfare even if the growth rate of the economy is less than the interest rate. Education subsidies have an ambiguous impact because they simultaneously transfer resources across generations and change the relative price of investing in human capital. Overall, the paper shows the existence of important non-monotonicities associated with the welfare effects of modifying the tax parameters in an endogenous growth framework

We also acknowledge financial support from Instituto de Estudios Fiscales (Spanish Ministry of Finances, 2014-15), the Spanish Ministry of Science (projects ECO2013-45395-R and ECO2012-37572) and the Generalitat de Catalunya (contracts 2014SGR1360 and 2014SGR327, and the XREPP)

© Economic Modelling, 2016, vol. 52, part B, p. 531-539

Elsevier

Author: Del Rey Canteli, Elena
Lopez-Garcia, Miguel Angel
Date: 2016 January
Abstract: We consider an overlapping generations model with endogenous growth and embrace the Two-Part Golden Rule criterion to analyze the welfare effects of intergenerational transfers and education subsidies. The results are compared with those obtained within the well-known exogenous growth framework. In both cases, pay-as-you-go social security enhances welfare if the growth rate is larger than the interest rate at the laissez-faire. However, with endogenous growth, pay-as-you-go social security may also increase welfare even if the growth rate of the economy is less than the interest rate. Education subsidies have an ambiguous impact because they simultaneously transfer resources across generations and change the relative price of investing in human capital. Overall, the paper shows the existence of important non-monotonicities associated with the welfare effects of modifying the tax parameters in an endogenous growth framework
We also acknowledge financial support from Instituto de Estudios Fiscales (Spanish Ministry of Finances, 2014-15), the Spanish Ministry of Science (projects ECO2013-45395-R and ECO2012-37572) and the Generalitat de Catalunya (contracts 2014SGR1360 and 2014SGR327, and the XREPP)
Format: application/pdf
ISSN: 0264-9993
Document access: http://hdl.handle.net/10256/13163
Language: eng
Publisher: Elsevier
Collection: MINECO/PE 2014-2016/ECO2013-45395-R
Reproducció digital del document publicat a: http://dx.doi.org/10.1016/j.econmod.2015.09.033
Articles publicats (D-EC)
Is part of: © Economic Modelling, 2016, vol. 52, part B, p. 531-539
Rights: Tots els drets reservats
Subject: Educació -- Aspectes polítics
Education -- Political aspects
Creixement endogen (Economia)
Endogenous growth (Economics)
Recursos humans
Human capital
Title: Endogenous growth and welfare effects of education subsidies and intergenerational transfers
Type: info:eu-repo/semantics/article
Repository: DUGiDocs

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