Public and private expenditures on human capital accumulation in India

Arbeitspapier

We study a model of human capital driven growth, where the parent's human capital serves as a productive input in the child's human capital production only when that of the former exceeds a minimum level required to intellectually contribute to the child's learning. Private and public expenditures on education enter in the child's human capital production function, and are allowed to vary in terms of substitutability and relative productivity. Households receive income from labor and face both labor and consumption taxes. The government receives consumption tax revenues and a proportion of income tax revenues and spends these revenues on public education. We simulate the model to a state in India and experimentally increase public education spending through various tax instruments. We find: (i) large changes in education funding have very small effects on growth and on the evolution of income inequality; (ii) raising the consumption tax generates about as much economic growth as realizing an increase in the center-state transfer from the federal level, and (iii) financing this increase in public spending through the labor tax increases economic growth by less than utilizing the consumption tax; however, it reduces inequality by more than utilizing the consumption tax. Hence, there is growth-inequality trade-off.

Object Details

• ISBN: 978-92-9230-909-1
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WIDER Working Paper ; No. 2015/024

Classification and Topics

• Classification: Wirtschaft ; Publicly Provided Goods: General ; Health, Education, and Welfare: General ; Economic Growth and Aggregate Productivity: General
• Subject: human capital ; tax policy ; public education ; inequality ; Indian economic growth

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ghate, Chetan ; Glomm, Gerhard ; Stone, John T.
• Event: Veröffentlichung
• (who): The United Nations University World Institute for Development Economics Research (UNU-WIDER)
• (where): Helsinki
• (when): 2015

Further information

• DOI: doi:10.35188/UNU-WIDER/2015/909-1
• Handle: http://hdl.handle.net/10419/126345
• Last update: 10.03.2025, 11:42 AM CET