Public versus private investment and growth in a hierarchical education system

El pdf del artículo es el documento de trabajo.The paper studies the interaction between public and private spending in a two-stage education framework (K-12 and tertiary education) and their effects on economic growth. We find that an increase in the overall education public spending crowds out the total level of private contributions and increases the share of resources that households devote to K-12 education. For a given public budget, a higher share of K-12 public funding induces higher private education spending overall, of which a larger share goes towards higher education. The model broadly matches data on education finance in the OECD countries. The calibrated parameter values suggest that at both stages public and private inputs are good yet imperfect substitutes, with a higher degree of complementarity in basic education. We show that the growth maximizing share of public spending devoted to K-12 should be high, irrespective of the size of the public budget. Using the calibrated model to compare the structure of education funding in the EU and the US, we find that, to maximize growth, high tax countries should use more of their public resources in tertiary education relative to low tax countries. This suggests that US efforts to improve K-12 education and the reform of higher education in Europe are consistent with the objective of increased economic growth

Public budget composition, fiscal (de)centralization, and welfare

El pdf del artículo es el documento de trabajo.We study the optimal degree of fiscal decentralization in a dynamic federal economy where governments decide on budget size and its allocation between public education and infrastructure spending. We find that full centralization of tax and expenditure policies is optimal when infrastructure productivity is similar across regions. When differences are not too large, partial centralization is optimal. With strong differences, full decentralization becomes optimal. National steady-state output tends to be highest under full decentralization. We provide a justification for the mixed evidence regarding the Oates conjecture by showing that full dominates partial decentralization, despite being inferior to complete decentralization