Education, borrowing constraints and growth

Kitaura, Koji

doi:10.1016/j.econlet.2012.05.053

Cited by 7 publications

(7 citation statements)

References 10 publications

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“…When the punishment of wage garnishment is not too severe ( ∈ (0   )),   = 0 and   thus remains unchanged as in (17). However, since the cost of default rises with wage garnishment, the threshold of bequest above which the borrowing limit becomes slack (  ) now falls.…”

Section: Additional Penalty: Wage Garnishmentmentioning

confidence: 99%

“…6 This paper is in line with recent work on borrowing constraints and human capital investment, but the focus in that literature is never on the effects of such constraints on the evolution of inequality in a market economy. De Gregorio (1996), Cartiglia (1997), Kaas and Zink (2007), Kitaura (2012), and Jacobs and Yang (2013), among others, consider exogenous borrowing constraints: individuals cannot borrow more than a fixed fraction of their current income, a case we consider parenthetically. In recent work, Andolfatto and Gervais (2006) and Wang (2014) study endogenous borrowing constraints in the context of optimal public education-pension policies, whereas de la Croix and Michel (2007) and Azariadis and Kaas (2008) focus more on issues, such as growth, relating to indeterminacy in such environments.…”

Section: Introductionmentioning

confidence: 99%

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Endogenous Borrowing Constraints and Wealth Inequality

2016

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This paper studies the evolution of wealth inequality in an economy with endogenous borrowing constraints. In the model economy, agents need to borrow to finance human capital investments but cannot commit to repaying their loans. Creditors can punish defaulters by banishing them permanently from the credit market. In equilibrium, loan default is prevented by imposing a borrowing limit tied to the borrower's inheritance. The heterogeneity in inheritances translates into heterogeneity in the borrowing limits: endogenously, some young borrowers face a zero borrowing limit, some are partly constrained, while others are unconstrained. Depending on the initial distribution of inheritances, it is possible all lineages are attracted to either the zeroborrowing-limit steady state or to the unconstrained-borrowing steady state --long-run equality. It is also possible some lineages end up at one steady state and the rest at the other --complete polarization. Interestingly, the wealth dynamics in the model closely resemble that in the seminal work of Galor and Zeira (1993 Abstract This paper studies the evolution of wealth inequality in an economy with endogenous borrowing constraints. In the model economy, agents need to borrow to finance human capital investments but cannot commit to repaying their loans. Creditors can punish defaulters by banishing them permanently from the credit market. In equilibrium, loan default is prevented by imposing a borrowing limit tied to the borrower's inheritance. The heterogeneity in inheritances translates into heterogeneity in the borrowing limits: endogenously, some young borrowers face a zero borrowing limit, some are partly constrained, while others are unconstrained. Depending on the initial distribution of inheritances, it is possible all lineages are attracted to either the zero-borrowing-limit steady state or to the unconstrained-borrowing steady state -long-run equality. It is also possible some lineages end up at one steady state and the rest at the other -complete polarization. Interestingly, the wealth dynamics in the model closely resemble that in the seminal work of Galor and Zeira (1993).JEL Classification Numbers: E62, E25, O23, O41, E44.

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Section: Additional Penalty: Wage Garnishmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Endogenous Borrowing Constraints and Wealth Inequality

2016

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“…Specifically, they show conditions which depend on the level of private financing of education where low credit market development implies a negative effect of private financing of education on growth whereas adequately developed credit markets imply a positive effect. 9 Kitaura (2012) and Hatcher (2022) further argue that the effects of borrowing constraints on welfare differ across generations.…”

Section: Introductionmentioning

confidence: 99%

On the causality between household and government spending on education: evidence from a panel of 40 countries

Naurin

Pourpourides

2023

Empir Econ

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This paper sheds light on an important causality which is of primary interest for policy makers, at both country level and broad institutional level, though it is largely ignored in the literature. Using panel data from a diversified group of countries and after controlling for various factors and endogeneities within the context of multivariate models, we present evidence that an increase in the intensity of government spending on education leads to an overall increase in the intensity of household spending on education of a roughly equal magnitude, within a span of two years. Specifically, a 1% increase in the intensity of government spending on education induces a contemporaneous increase in the intensity of household spending on education of 3%, followed by a correction of 2% the subsequent year. We further find that the reverse causality does not hold. Our mediation analysis within our set of variables suggests that the causality is only direct, and that there is no statistically significant distinction between low- and high-income countries.

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“…This result depends on the absence of human capital investment. If there are borrowing constraints which hinder investment in human capital, then the positive relationship between credit constraints and growth may be reversed (De Gregorio, 1996), though this need not be the case (De la Croix & Michel, 2007; Kitaura, 2012). Here, we show that parental financing of education may have important implications for this debate: its effects on economic growth are not monotonic but rather depend crucially on the level of credit market development.…”

Section: Introductionmentioning

confidence: 99%

Does the impact of private education on growth differ at different levels of credit market development?

Hatcher

Pourpourides

2022

Review Development Economics

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Using an overlapping generations model, we show that the impact of private financing of education on growth depends on credit market development, being positive when credit markets are adequately developed but negative if sufficiently low levels of credit market development occur alongside relatively high private financing intensities. Employing cross-country data, we find that reduced-form growth relationships are statistically significant and robust under various controls and samples. We also lay out conditions under which economies with missing credit markets are dynamically efficient and outperform, in terms of growth, economies with complete credit markets. The latter may explain large cross-country differences in savings and growth, while facilitating the evaluation of policies on financing education.

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Education, borrowing constraints and growth

Cited by 7 publications

References 10 publications

Endogenous Borrowing Constraints and Wealth Inequality

Endogenous Borrowing Constraints and Wealth Inequality

On the causality between household and government spending on education: evidence from a panel of 40 countries

Does the impact of private education on growth differ at different levels of credit market development?

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