Altruistic Overlapping Generations of Households and the Contribution of Human Capital to Economic Growth

Accolley, Delali (2015): Altruistic Overlapping Generations of Households and the Contribution of Human Capital to Economic Growth.

Abstract

I developed a dynamic deterministic general equilibrium model accounting for human capital accumulation through both home education and schooling. The model is characterized by an altruistic link between households of succeeding generations in the sense parents, caring about their children’s welfare, freely impart them some knowledge at home in addition to helping them financially when they are schooling. The education regime is private and features distinguishing my model from related works are: (1) young households are economically active and work part-time while schooling, (2) allocating time to schooling or labor entails disutility, (3) tuition is proportional to the time allocated to schooling. I calibrated the model to some balanced growth facts observed between 1981 and 2013 in the Province of Quebec.

The model is then used to investigate the contribution of human capital to economic growth. To do that, I simulate it assuming in turn a permanent rise in the tuition rate and the household’s ability to learn. Each of these two shocks reveals a positive correlation between education, human capital, and output. The predictions of the model are then used to shed a light on the student crisis Quebec witnessed in 2012 following our former Liberal government’s decision to increase tuition. I predict that raising tuition will neither harm education nor negatively impact on students’ ability to pay.

• Item Type: MPRA Paper
• Language: English
• Keywords: Education, economic growth, human capital, overlapping generations
• Subjects: J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

References

Aghion, P., and P. Howitt (1998): Endogenous Growth Theory. The MIT Press, Cambridge, MA, US.

Aghion, P., and P. Howitt (2009): The Economics of Growth. The MIT Press, Cambridge, MA, US.

Barro, R. J. (1974): “Are Government Bonds Net Wealth?,” Journal of Political Economy, 82(6), 1095–117.

Barro, R. J. (1991): “Economic Growth in a Cross-Section of Countries,” The Quarterly Journal of Economics, 106(2), 407–43.

Barro, R. J. (2001): “Human Capital: Growth, History, and Policy - A Session to Honor Stanley Engerman,” The American Economic Review, 91(2), 12–7.

Becker, G. S. (1964): Human Capital. Columbia University Press for the National Bureau of Economic Research, New York, NY, US.

Bils, M., and P. Klenow (2000): “Does Schooling Cause Growth?,” The American Economic Review, 90(5), 1160–83.

Cooley, T. F., and E. C. Prescott (1995): “Economic Growth and Business Cycles,”Frontiers of Business Cycle Research, pp. 1–38.

de la Croix, D., and P. Michel (2002): A Theory of Economic Growth: Dynamics and Policy in Overlapping Generations. Cambridge University Press, New York, NY, US.

DeJong, D. N., and B. Ingram (2001): “The Cyclical Behavior of Skill Acquisition,”Review of Economic Dynamics, 4, 536–61.

Diamond, P. (1965): “National Debt in a Neoclassical Growth Model,” American Economic Review, 55, 1126–50.

Fowler, S., and E. Young (2004): “The Acquisition of Skills over the Life-Cycle,” Unpublished.

Glomm, G., and B. Ravikumar (1992): “Public versus Private Investment in Human Capital: Endogenous Growth and Income Inequality,” Journal of Political Economy, 100(4), 818–34.

Gomme, P., and P. Ruper (2005): “Theory, Measurement and Calibration of Macroeconomic Models,” Unpublished.

Heckman, J. J., L. Lochner, and C. Taber (1998): “Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents,” Review of Economic Dynamics, 1, 1–58.

Lucas Jr, R. E. (1988): “On the Mechanisms of Economic Development,” Journal of Monetary Economics, 22, 3–42.

Mankiw, N. G., D. Romer, and D. N.Weil (1992): “A Contribution to the Empirics of Economic Growth,” The Quarterly Journal of Economics, 107(2), 407–43.

Razin, A. (1972): “Optimum Investment in Human Capital,” The Review of Economic Studies, 39(4), 455–60.

Sadahiro, A., and M. Shimasawa (2002): “The Computable Overlapping Generations Model with an Endogenous Growth Mechanism,” Economic Modelling, 20, 1–24.

Samuelson, P. A. (1958): “An Exact Consumption-Loan Model of Interest with and without the Social Contrivance of Money,” The Journal of Political Economy, 66(6), 467–82.

Shimomura, K., and B. Tran-Nam (1997): “Education, Human Capital, and Economic Growth in an Overlapping Generations Model,” Journal of Economics and Business Administration (Kokumin-Keizai Zasshi), 175, 63–79.

Tran-Nam, B., C. N. Truong, and P. N. Van Tu (1995): “Human capital and economic growth in an overlapping generations model,” Journal of Economics, 61(2), 147–173.