Impact of Education Subsidies and Taxation on Wealth and Human Capital Accumulation



Wei-Bin Zhang


Zhang W. 2016. Impact of Education Subsidies and Taxation on Wealth and Human Capital Accumulation. Eastern European Business and Economics Journal 2(3): 222 - 247.


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David CANTARERO-PRIETO, University of Cantabria, Spain;

Deepraj MUKHERJEE, Kent State University, USA;

Rossitsa RANGELOVA, Economic Research Institute at the Bulgarian Academy of Sciences, Bulgaria.



This paper proposes an economic growth model of endogenous wealth and human capital with government’s subsidy policies on education. The economic system is built on the basis of the Solow growth model and the Uzawa-Lucas two-sector model. We take into account three ways of accumulating human capital: learning by producing, learning by education, and learning by consuming. The model describes a dynamic interdependence among wealth accumulation, human capital accumulation, division of labor, and government taxation. We simulate the model to demonstrate the existence of equilibrium points and motion of the dynamic system. We also examine the effects of changes in the propensity to receive education, efficiency of learning, and efficiency of education upon dynamic paths of the system.



economic growth; learning by consuming; learning by education; government subsidy; propensity to receive education


JEL classification:

O41, H2, I26







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