"TIME-RELEASE" OUTPUT RESPONSES TO PUBLIC EDUCATION EXPENDITURES. (11th January 2021)

• Record Type: Journal Article
• Authors: Atems, Bebonchu; Blankenau, William
• Is Part Of: Macroeconomic dynamics. Volume 26:Number 6(2022)
• Page Start: 1483
• Page End: 1521
• Publication Date: 2021-01-11
• Subjects: Education Spending -- Overlapping Generations Model -- Vector Autoregressions; Macroeconomics -- Periodicals; 339.05
• DOI: 10.1017/S1365100520000656
• Languages: English
• ISSNs: 1365-1005

Abstract

Abstract : This paper argues that output can respond to public education spending in a delayed and persistent manner through human capital accumulation. We refer to this as a "time-release" response, reflecting that the output response grows as students exposed to increased expenditures sequentially enter the labor market. We first develop and calibrate a stochastic overlapping generations model to formalize the propagation of spending shocks over a long time horizon. We then empirically explore this time-release aspect of shocks to government education expenditures on output using US state-level data for the period 1963–2016 and a panel structural vector autoregression methodology. Consistent with the model, our empirical results show that the dynamic response of output to shocks to government education expenditures is positive, significant, and long-lasting.