Publicly financed education in an endogenous growth model

Purpose – This paper aims to examine the growth effects of human capital investment achieved through publicly-provided, compulsory education, financed from income and consumption taxes. Design/methodology/approach – Constructs an endogenous growth model for developing countries, based on human capital accumulation in which education is publicly provided and financed, and schooling is compulsory. Findings – Public investment in human and physical capital are financed from taxes on wage and capital income, and consumption. Semi-reduced forms are obtained to examine the equilibrium growth properties of the model, allowing the steady-state effects of fiscal policy to be derived. The specification of the human capital production function and the strength of labour supply effects are shown to be important for the magnitude of steady-state outcomes. Simulations illustrate the model's steady-state and transitional dynamic properties. Originality/value – Provides an analysis of the growth impact of state-provided education.