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Educational funds and economic growth:private versus public funds

Author

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  • Kohei Okada

    (Graduate School of Economics, Osaka University)

Abstract

This study constructs an overlapping generations model in order to examine the relationshipbetween education and R&D activities. Using this model, we analyze the effect of individuals'borrowing of educational funds on economic growth. We rst consider the benchmark case inwhich individuals borrow educational funds at a market interest rate. We next consider thatindividuals borrow educational funds from a government at a constant rate of interest. If thepolicy interest rate is too low, the number of skilled workers increases, but economic growth isnot achieved in the long run, because an increase in the demand for educational funds owing tothe low policy interest rate crowds out funds for R&D investment and hinders economic growth.In addition, this study examines welfare and intergenerational inequality. When the governmentlowers the policy interest rate, the current generation's welfare level increases. However, futuregenerations' welfare levels will decrease. This study shows that the government faces a trade-offbetween the current generation's welfare and future generations' welfare.

Suggested Citation

  • Kohei Okada, 2019. "Educational funds and economic growth:private versus public funds," Discussion Papers in Economics and Business 19-07, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1907
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    More about this item

    Keywords

    Education policy; Occupational choice; Intergenerational inequality; R&D;
    All these keywords.

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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