Endogenous Expenditures on Public Schools and Persistent Growth

Abstract

In this paper, we present a model where individuals accumulate human capital through the formal schooling. To take into account the large involvement of the public sector in education we introduce a government which collects taxes from households and provides inputs to the learning technology. In our model the public expenditures on schools and growth rates are determined endogenously. Under plausible restrictions on the parameters of our model, we show that the predictions of our model qualitatively match the observations on per capita income, years of schooling, public expenditures on education and student-teacher ratios.

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