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Poverty, prosperity, and fiscal policies in a two-sector model with human capital externalities

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Listed:
  • Lei Shao
  • Jie Zhang
Abstract
This paper investigates the multiplicity and indeterminacy of balanced growth paths (BGPs) to capture coexisting poverty traps and prosperity across countries in an extended Lucas model incorporating physical inputs, human capital externalities, and decreasing returns to scale in education. We show that two BGPs can emerge, where the high-growth BGP devotes more resources to education than the low-growth BGP. Without taxes or subsidies, the two BGPs never display poverty traps. With taxes and subsidies, however, the two BGPs may display prosperity on one BGP and poverty traps on the other BGP that could be avoidable by suitable fiscal policies.

Suggested Citation

  • Lei Shao & Jie Zhang, 2019. "Poverty, prosperity, and fiscal policies in a two-sector model with human capital externalities," Oxford Economic Papers, Oxford University Press, vol. 71(3), pages 577-599.
    • Handle: RePEc:oup:oxecpp:v:71:y:2019:i:3:p:577-599.
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    File URL: http://hdl.handle.net/10.1093/oep/gpy049
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    Cited by:

    1. Zeng, Jinli & Zhang, Jie, 2022. "Education policies and development with threshold human capital externalities," Economic Modelling, Elsevier, vol. 108(C).

    More about this item

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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