Public Education and Growth in Developing Countries

Human capital plays a key role in fostering technology adoption, the major source of economic growth in developing countries. Consequently, enhancing the level of human capital should be a matter of public concern. The present paper studies public education incentives in an environment in which governments can invest in human capital to facilitate the adoption of new technologies invented abroad or, instead, focus on consumptive public spending. Although human capital is pivotal for growth, the model reveals that incentives to invest in public education vanish if a country is poorly endowed with human capital. Rather, governments of these poorly-endowed countries focus on consumptive public spending. As a result, while their better-endowed counterparts build up human capital thereby promoting technology adoption and growth, the growth process in poorly-endowed countries stagnates.growth; public education; human capital; technology adoption

Financing Social Security by Taxing Capital Income – A Bad Idea?

This paper examines the growth effects of an increase of capital income taxes with additional revenue being devoted to cut wage-related social security contributions to reduce unemployment. The analysis is carried out in an overlapping generations model with endogenous growth, unemployment and a social security system comprising pensions and unemployment benefits. It is shown that the reform not only promotes employment but may additionally stimulate economic growth. Calibrating the model to match data for the EU15 reveals that European countries can indeed gain in form of higher employment and growth if the initial capital income tax is not too high.Capital income taxation, social security, imperfect labor market, overlapping generations, growth

Financing social security by taxing capital income: A bad idea?

This paper examines the growth effects of an increase of capital income taxes if the additional revenue is devoted to cutting wage-related social security contributions to reduce unemployment. The analysis is carried out in an overlapping-generations model with endogenous growth, unemployment, and a social security system comprising pensions and unemployment benefits. It is shown that the reform not only promotes employment but may additionally stimulate economic growth. Calibrating the model to match data for the EU-15 reveals that European countries can indeed gain higher employment and growth if the initial capital income tax is not too high.labor market, overlapping generations, social security, capital income taxation