Government investments in schooling and infrastructure: Ramsey vs. public choice paths in a lifecycle growth model

Abstract

Government financing of schooling is necessitated by capital market imperfections. Governments are also res­ ponsible for maintaining a stock of public capital that enters private production function. In this paper the welfare implications and politics of these investments are examined in a version of Diamond (1965) growth model. It is argued that in decentralized environments where the working generation is decisive each period significant underinvestment in both schooling and in­ frastructure will be observed relative to the Ramsey equilibrium.