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Social Status, Education and Government Spending in a Two-Sector Model of Endogenous Growth

Social Status, Education and Government Spending in a Two-Sector Model of Endogenous Growth Abstract This paper extends the relative wealth specification of status preference to the two-sector Uzawa (1965)–Lucas (1988) model and examines the effectiveness of government spending on economic growth. It is found that the desire for relative wealth-induced social status and/or the education component of relative wealth-induced social status are important ingredients in determining the growth rate effects of government spending. Provided that the agent is concerned with his or her relative social position, the education-induced social status plays a more important role than the physical-asset-induced social status in determining the validity of public spending on growth. If individuals do not care about their education-driven social rewards, then an increase in government spending has no effect on the balanced growth rate regardless of the presence of the physical-asset-induced social status. A rise in government spending reduces the long-run growth rate if the education-induced social status is present. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Japanese Economic Review Springer Journals

Social Status, Education and Government Spending in a Two-Sector Model of Endogenous Growth

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References (41)

Publisher
Springer Journals
Copyright
2007 Japanese Economic Association
ISSN
1352-4739
eISSN
1468-5876
DOI
10.1111/j.1468-5876.2007.00379.x
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper extends the relative wealth specification of status preference to the two-sector Uzawa (1965)–Lucas (1988) model and examines the effectiveness of government spending on economic growth. It is found that the desire for relative wealth-induced social status and/or the education component of relative wealth-induced social status are important ingredients in determining the growth rate effects of government spending. Provided that the agent is concerned with his or her relative social position, the education-induced social status plays a more important role than the physical-asset-induced social status in determining the validity of public spending on growth. If individuals do not care about their education-driven social rewards, then an increase in government spending has no effect on the balanced growth rate regardless of the presence of the physical-asset-induced social status. A rise in government spending reduces the long-run growth rate if the education-induced social status is present.

Journal

The Japanese Economic Review – Springer Journals

Published: Mar 1, 2008

Keywords: economics, general; microeconomics; macroeconomics/monetary economics//financial economics; econometrics; development economics; economic history

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