Endogenous mortality, human capital and economic growth |
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Authors: | Thomas Osang Jayanta Sarkar |
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Institution: | aDepartment of Economics, Southern Methodist University, Box 750496, Dallas, TX 75275-0496, USA;bDepartment of Economics and Finance, Louisiana Tech University, Ruston, LA 71272, USA |
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Abstract: | We consider growth and welfare effects of lifetime-uncertainty in an economy with human capital-led endogenous growth. We argue that lifetime uncertainty reduces private incentives to invest in both physical and human capital. Using an overlapping generations framework with finite-lived households we analyze the relevance of government expenditure on health and education to counter such growth-reducing forces. We focus on three different models that differ with respect to the mode of financing of education: (i) both private and public spending, (ii) only public spending, and (iii) only private spending. Results show that models (i) and (iii) outperform model (ii) with respect to long-term growth rates of per capita income, welfare levels and other important macroeconomic indicators. Theoretical predictions of model rankings for these macroeconomic indicators are also supported by observed stylized facts. |
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Keywords: | Health Life expectancy Human capital Public spending Endogenous growth |
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