2022 Volume 52 Issue 2 Pages 271-292
The Bhutanese government initiated the central school program as per the Bhutan Education Blueprint 2014-2024 to increase human capital accumulation, which subsidized education expenditures and was gradually extended over the years and currently covers about 28% of total students in Bhutan. Given the fiscal constraints, we use the two-period OLG model with endogenous growth fueled by human capital to calibrate a model using Bhutan’s existing central school policies and simulate the coverage to all students, and evaluate the effects on the economic growth rate. We found that the economic growth rate was initially higher by 2.285 percent on average when the increase in education subsidies is financed through debt. However, after the fourth period, the economic growth rate was higher by an average of 0.331 percent when the increased subsidy was financed through tax during the transition and at the steady growth path. Additionally, in light of the declining population growth rate in Bhutan, we simulated the effect of the decrease in population growth rate on the economy. We concluded that to finance the extension of central school program in the short-run, debt financing is preferable, however, in the long-run tax financing is preferable from the viewpoint of economic growth.
JEL Classifications:C68, E62, F35, H24, H62
