RESEARCH PAPER NO. 775

Public Finance and Public Education in a General Equilibrium Endogenous Growth Model

by

JOHN CREEDY & NORMAN GEMMELL

JANUARY 2001

Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia

Contents

1. Introduction

2. The Structure of The Model.

3. The Structure of The Model

3.1 Production and Prices

3.2 Consumption and Labour Supply

3.3 The Government Sector

3.4 Some General Properties

4. The Dynamics of The Model

4.1 Input, Output and Revenue Growth

4.2 Steady-State Growth

4.3 Fiscal Policy Effects on Steady State Growth

4.3.1 Direct and Indirect Effects

4.3.2 The Role of Expenditure Proportions

4.3.3 Human Capital Production Technology

4.4 Partial Effects

4.4.1 Increasing Education

4.4.2 Increasing Expenditures on Investment

4.4.3 Increasing Taxes

4.5 Growth-Neutral Fiscal Policy

4.6 Transitional Dynamics

5. Simulating Alternative Fiscal Policies

5.1 A Benchmark Case

5.2 Changing Tax Rates

5.3 Changing Expenditure Allocations

5.4 Transitional Dynamics

5.5 Growth versus Current Welfare

6. Conclusions

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