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Intergenerational Complementarities in Education, Endogenous Public Policy, and the Relation Between Growth and Volatility
Author(s) -
PALIVOS THEODORE,
VARVARIGOS DIMITRIOS
Publication year - 2013
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12017
Subject(s) - economics , volatility (finance) , endogenous growth theory , overlapping generations model , human capital , coordination failure , public finance , indeterminacy (philosophy) , microeconomics , mechanism (biology) , econometrics , macroeconomics , market economy , philosophy , physics , epistemology , quantum mechanics
Abstract We construct an overlapping generations model in which parents vote on the tax rate that determines publicly provided education and offspring choose their effort in learning activities. The technology governing the accumulation of human capital allows these decisions to be strategic complements. In the presence of coordination failure, indeterminacy and, possibly, growth volatility emerge. This indeterminacy can be eliminated by an institutional mechanism that commits to a minimum level of public education provision. Given that, in the latter case, the economy moves along a uniquely determined balanced growth path, we argue that such structural differences can account for the negative correlation between volatility and growth.