Public versus Private Investment in Human Capital: Endogenous Growth and Income Inequality

Abstract

In this paper, we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth. We use simple functional forms for preferences, technologies, and income distribution to highlight the distinction between economies with public education and those with private education. We find that income inequality declines more quickly under public education. On the other hand, private education yields greater per capita incomes unless the initial income inequality is sufficiently high. We also find that societies will choose public education if a majority of agents have incomes below average.

Productive government spending and its consequences for the growth–inequality tradeoff

“…9 The assumption of a unitary inter-temporal elasticity of substitution utility function of altruistic agents with a "joy of giving" motive is widely used in the literature of income distribution dynamics (see, for instance, Glomm and Ravikumar, 1992, Galor and Zeira, 1993, Saint-Paul and Verdier, 1993, and Bénabou, 2000. 10 Setting 23   implies 1.5   , which the empirical evidence discussed in Section 5 suggests is not a severe restriction.…”

“…In conducting these, we pay particular attention to relating them to the relevant empirical evidence, and find that despite its parsimony the model performs well in this dimenstion. Section 7 concludes, while technical details are provided in the Appendix.6 There is also a vast literature that studies the relationship between public education and income distribution, to which this paper may also be related to by virtue of the common interest of examining the distributional effect of a productive public good in growth models, (e.g., Glomm and Ravikumar, 1992, 2003, Saint-Paul and Verdier, 1993, and Eckstein and Zilcha, 1994. Finally, it is also related to studies of the impact of the elasticity of substitution (between capital and labor) on growth; see e.g.…”

Tax structure, growth, and welfare in the UK

“…Equivalently it can be thought of as a learning-by-doing e¤ect as discussed in Romer (1986). Examples of other papers which use the per capita level of aggregate human capital in either the goods or human capital production functions include Lucas (1988), Azariadis and Drazen, (1990), Tamura (1991) and Glomm and Ravikumar (1992). 7 The assumption that individual human capital accumulation depends on the per 6 human capital, aggregate human capital externality and public education spending respectively.…”

“…The basic idea used in the construction of this dataset is that the output of the education sector is considered as investment in human capital. 16 Unfortunately, such data are not available for the UK. We use, however, the Fraumeni (1989, 1992a,b) dataset, by setting the depreciation rate for human capital to the value they calculate, so that h = 0:0178.…”

Effects of Government Education and Health Expenditures on Economic Growth: A Meta-Analysis

“…Among those papers are Glomm and Ravikumar (1992, Eckstein and Zilcha (1994), Zhang (1996), Kaganovich andZilcha (1999), Cassou andLansing (2001), Benabou (2002), Blankeanu (2005), andWigger (2004). Glomm and Ravikumar (1992), for instance, examine the implication of schooling on growth and income inequality and find that public education can yield greater per capita incomes when the initial income inequality is sufficiently high in an overlapping-generations model. Zhang (1996) finds that education subsidization stimulates growth and reduces welfare losses caused by human capital externalities.…”