Capital Mobility, Fiscal Policy and Growth under Self-Financing of Human Capital Formation / Willem H. Buiter, Kenneth M. Kletzer.

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Buiter, Willem H

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w5120.Publication details: Cambridge, Mass. National Bureau of Economic Research 1995.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: This paper considers the effects of fiscal and financial policy on economic growth in open and closed economies, when human capital formation by young households is constrained by the illiquidity of human wealth. Both endogenous and exogenous growth versions of the basic OLG model are analyzed. We find that intergenerational redistribution policies that discourage physical capital formation may encourage human capital formation. Despite common technologies and perfect international mobility of financial capital, the non- tradedness of human capital and the illiquidity of human wealth make for persistent differences in productivity growth rates (in the endogenous growth version of the model) or in their levels (in the exogenous growth version). We also consider the productivity growth (or level) effects of public spending on education and of the distortionary taxation of financial asset income.

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Previous	nber w5117 Costs of Environmentally Motivated Taxes in the Presence of Other Taxes: General Equilibrium Analyses /	nber w5118 Effects of Air Quality Regulation /	nber w5119 The Effect of Prison Population Size on Crime Rates: Evidence From Prison Overcrowding Litigation /	nber w5120 Capital Mobility, Fiscal Policy and Growth under Self-Financing of Human Capital Formation /	nber w5121 Foreign Investment, Outsourcing and Relative Wages /	nber w5122 Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras /	nber w5123 Employment, Unemployment, and Problem Drinking /	Next

May 1995.

This paper considers the effects of fiscal and financial policy on economic growth in open and closed economies, when human capital formation by young households is constrained by the illiquidity of human wealth. Both endogenous and exogenous growth versions of the basic OLG model are analyzed. We find that intergenerational redistribution policies that discourage physical capital formation may encourage human capital formation. Despite common technologies and perfect international mobility of financial capital, the non- tradedness of human capital and the illiquidity of human wealth make for persistent differences in productivity growth rates (in the endogenous growth version of the model) or in their levels (in the exogenous growth version). We also consider the productivity growth (or level) effects of public spending on education and of the distortionary taxation of financial asset income.