Human capital formation and public debt: growth and welfare effects of three different deficit policies. Issue 4 (1st October 2016)

• Record Type: Journal Article
• Authors: Greiner, Alfred
• Is Part Of: Journal of economic policy reform. Volume 19:Issue 4(2016)
• Page Start: 369
• Page End: 385
• Publication Date: 2016-10-01
• Subjects: public debt -- human capital formation -- economic growth -- welfare; E62 -- H52 -- H63; Economic policy -- Periodicals; Commercial policy -- Periodicals; Monetary policy -- Periodicals; International trade -- Periodicals; Developing countries -- Economic policy -- Periodicals; Former Soviet republics -- Economic policy -- Periodicals; Post-communism -- Periodicals; Policy sciences -- Periodicals; 338.9
• DOI: 10.1080/17487870.2015.1128834
• Languages: English
• ISSNs: 1748-7870

Abstract

Abstract : We analyze an endogenous growth model public educational spending. We show that the balanced budget policy and the policy with a slight deficit yield higher growth than a debt policy where public debt grows at the same rate as GDP, unless the government is a creditor. As concerns welfare, it can be demonstrated that a strong deficit policy yields lower welfare than a balanced budget and a slight deficit policy, unless initial debt ratios are low and the intertemporal elasticity of substitution is high. Finally, there may exist an inverted U-shaped relation between welfare and deficit-financed educational spending.