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The Impact of Public Education Expenditure on Human Capital and Economic Growth

Author: XuHuan
Tutor: QianXueYa
School: Zhejiang Technology and Business University
Course: Quantitative Economics
Keywords: Government Education Expenditure Human Capital Economic Growth Computable General Equilibrium Model
CLC: G526.7
Type: Master's thesis
Year: 2011
Downloads: 242
Quote: 0
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In the era of information, knowledge and skills have become the engines of economic development, human capital this element play an important role in economic growth. Human capital as other capital needs to invest to form capital, in which education is considered to be the most important way of human capital investment. Education investment in the form of knowledge has positive externalities, if it relies solely on private education investment, the economic can not achieve the Pareto best, so the government intervention in human capital investment is needed. However, the motivation of government expenditure on public education and private education expenditure is different, which decides public expenditure on education in formation of human capital play a different role from private expenditure. Based on the analysis of the essence of public expenditure on education, I find that the public expenditure on education exists "demonstrative effect" mechanism on human capital which is different from private expenditure.This paper combines the theory of optimization and the principle of investment--income" derived the human capital accumulation" demonstrative effect" mechanism of public education expenditure, then constructed a computable general equilibrium model (CGE) which contains the mechanism into the model, finally design different public education expenditure policy to engage in count researching of public education expenditure impact on economic growth. The simulation results show that the increase of public education expenditure promotes economic growth, reduce income differential and increase government revenue which is good for forming a circulation system of government revenue and expenditure. At the same time, the public education expenditure increase in size can also promote China’s human capital accumulation. We should not only pay close attention to public education expenditure scale problem, but also should pay more attention to the public education expenditure structure which affects the public education expenditure efficiency. Public education expenditure structure determines whether labor supply can match the demand for labor or not, which decides the industry output. Different government education expenditure structure decides the efficiency of economic growth, so the design of government education expenditure structure should be in accordance with the demand for labor, in order to effectively promote the economic effective growth.

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