Can more education be bad? Some simple analytics on financing education

The evidence of effects of education activities on growth is mixed. So, could education be good, neutral, or bad, depending on the case? While the model in this paper remains close to the Heckscher-Ohlin tradition, it is shown that, contrary to the standard results, it is the net effect of prices, taxation, and accumulation of endowments that determines the Rybczynski-type growth effects, which may help explain the lack of consensus in the empirical literature on education and growth. A central feature of the model is that the accumulation of endowments depends on the output of education, while the changes in labour supply, which determine the effective production possibilities frontier, also depend on individuals’ decisions on allocation of time. In the paper, the risks of a labour supplyreducing government intervention are discussed. The analysis has implications for policymakers in developing countries where education needs to be enhanced, as it reveals the possibility of a ‘bad tax reform’ where the intentions of reformers are not met by the results. A sufficient condition to avoid this situation is identified in the paper.