Abstract
This study examines the effect of structural budget deficits on investment in human capital in a perfect-foresight model. This effect is shown to be significantly negative. This disinvestment in human capital is also shown to cause an important initial substitution toward work, consumption, and investment in physical capital. Thus the initial stimulative effect of deficits on economic activity is magnified. The long-run detrimental effects of deficits on these variables, however, are also magnified by the effect on human capital. In addition, the effect on human capital is shown to significantly increase the welfare cost of deficit finance.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
