A BEJM Contributions article.

Abstract

The decision to invest in human capital is introduced into a home production economy with fiscal policy distortions where balanced growth is achieved through Harrod-neutral, labor-augmenting technology spillovers into home production. In comparison with home production economies that abstract from human capital accumulation, the welfare losses from distortionary taxes are quite large due to their adverse effect on growth. However, the transition costs associated with a move to a less distortionary tax system are proportionately much lower. This owes to the fact that growth enhances the adjustment process such that less radical and more empirically plausible swings in employment, investment, and output are required to reach the new balanced growth path.

Submitted: March 8, 2001 · Accepted: July 13, 2001 · Published: July 13, 2001

Originally published in Contributions to Macroeconomics.

Recommended Citation

Einarsson, Tor and Marquis, Milton Harrison (2001) "Fiscal Policy and Human Capital Accumulation in a Home Production Economy," Contributions to Macroeconomics: Vol. 1 : Iss. 1, Article 2.
Available at: http://www.bepress.com/bejm/contributions/vol1/iss1/art2