Optimal education and pensions in an endogenous growth model

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Abstract

In OLG economies with life-cycle saving and exogenous growth, competitive equilibria in general fail to achieve optimality because individuals accumulate amounts of physical capital that differ from the one that maximizes welfare along a balanced growth path (the Golden Rule). With human capital, a second potential source of departure from optimality arises, related to education decisions. We propose to recover the Golden Rule of physical and also human capital accumulation. We characterize the optimal policy to decentralize the Golden Rule balanced growth path when there are no constraints for individuals to finance their education investments, and show that it involves education taxes. Also, when the government subsidizes the repayment of education loans, optimal pensions are positive. © 2013 Elsevier Inc.
Original languageEnglish
Pages (from-to)1737-1750
JournalJournal of Economic Theory
Volume148
Issue number4
DOIs
Publication statusPublished - 1 Jul 2013

Keywords

  • Education policy
  • Endogenous growth
  • Human capital
  • Intergenerational transfers

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