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Human capital and endogenous growth in a large scale life cycle model

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  • Arrau, Patricio

Abstract

Most models of economic growth are infinite horizon models that neglect the role of human capital in shaping life-cycle variables. This paper introduces training decisions in a life-cycle model to study the role of human capital both in life-cycle behavior and as an engine of growth. The crucial assumption about growth of this model is that new generations are endowed with the average level of skills available when they were born. The paper studies the impact of demographics and taxation on the endogenous rate of growth. Population growth affects the age distribution of the population and the equilibrium spillover that sustains growth. Unlike what happens with infinite horizon models, this model shows per capita income growth and population growth to be inversely related. Also, different from fertility-based models, this model shows the direction of causality to go from exogenous population growth to endogenous growth. To forgo consumption, households hold human and physical capital. Tax policy can affect the proportion of these assets in household portfolios. Tax policy that favors human capital (as opposed to physical capital) translates into higher per capita growth in income.

Suggested Citation

  • Arrau, Patricio, 1989. "Human capital and endogenous growth in a large scale life cycle model," Policy Research Working Paper Series 342, The World Bank.
    • Handle: RePEc:wbk:wbrwps:342
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    References listed on IDEAS

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    1. Altonji, Joseph G & Hayashi, Fumio & Kotlikoff, Laurence J, 1992. "Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data," American Economic Review, American Economic Association, vol. 82(5), pages 1177-1198, December.
    2. Alan J. Auerbach & Laurence J. Kotlikoff & Robert Hagemann & Giuseppe Nicoletti, 1989. "The Dynamics of an Aging Population: The Case of Four OECD Countries," NBER Working Papers 2797, National Bureau of Economic Research, Inc.
    3. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 501-526.
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    Cited by:

    1. Levine, Ross & Renelt, David, 1991. "Cross-country studies of growth and policy : methodological, conceptual, and statistical problems," Policy Research Working Paper Series 608, The World Bank.
    2. Weale, Martin, 1992. "Education, externalities, fertility, and economic growth," Policy Research Working Paper Series 1039, The World Bank.
    3. Arrau, Patricio, 1990. "How does the debt crisis affect investment and growth? : a neoclassical growth model applied to Mexico," Policy Research Working Paper Series 378, The World Bank.
    4. Corbo, Vittorio & Fischer, Stanley, 1991. "Adjustment programs and Bank support : rationale and main results," Policy Research Working Paper Series 582, The World Bank.

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