2023 Volume 53 Issue 2 Pages 203-220
This paper constructs an overlapping-generations model with endogenous growth fueled by human capital accumulation to explain why public education policies, represented by the public education subsidy ratio, differ among countries. To show this, we construct one model where the government maximizes the growth rate and one where it maximizes the objective function, the weighted sum of the utility of targeted generation and economic growth rate along the steady growth path. The main results of this paper are as follows. First, if individuals can survive longer and conversely, if the individuals’ weight of education investment for utility and the share of capital becomes smaller, the education subsidy ratio becomes higher when the government maximizes the long-run growth rate. Second, when the government maximizes the objective function for the targeted generation, the further the targeted generation is from the present, the higher the education subsidy ratio is, so the growth rate becomes. Third, it is shown how the education subsidy ratio can be determined dependent on the targeted generation. Fourth, the growth rates of the above two cases become the same when government targets the generation in an eternal future period.
JEL Classifications:E61, I25, R13, R28
