Public education, intergenerational transfers, and fertility

Abstract

We consider a three overlapping generations model with physical and human capital. In the absence of credit markets to finance education investments, the government provides public education for the young that can be financed through lump-sum taxes on the middle-aged and/or the elderly. Embracing the Golden Rule criterion, we analyse the welfare effects of public provision of education, intergenerational transfers and changes in the demographic growth rate. We identify sufficient conditions for welfare improvements following marginal increases in public education expenditures, lump-sum taxes on the middle aged, and the population growth rate along a locally stable balanced growth path.