We study an overlapping generations model of human capital accumulation with threshold effects using regional data for West Germany. Our basic goal is to shed light on what makes German regions grow. The paper finds that the relative income distribution appears to be stratifying into a trimodal...

Although many U.S. state policies presume that human capital is important for state economic development, there is little research linking better education to state incomes. In a complement to international studies of income differences, we investigate the extent to which quality-adjusted...

By merging individual data on valuable patents granted in Prussia in the late nineteenth century with county level information on literacy and income tax revenues we show that increases in the stock of human capital not only improved workers ́productivity but also accelerated innovative...

Beyond years of schooling, educational content can play an important role in the process of economic development. Individuals ́choices of educational content are often shaped by the political economy of government policies that determine the incentives to acquire various skills. We first...

The paper reexamines Lipset's theory of democratization, by distinguishing the role of (economic) development from that of education, inequality, and (natural) resources. We highlight two contrasting effects of education and human capital accumulation. On the one side, education prompts economic...

In this paper, we quantitatively assess the welfare implications of alternative public education spending rules. To this end, we employ a dynamic stochastic general equilibrium model in which human capital externalities and public education expenditures, financed by distorting taxes, enhance the...

We consider the issue of steady-state optimal factor taxation in a Ramsey-type dynamic general equilibrium setting with two distinct distortions: i) taxes on capital and labour are the only available tax instruments for raising revenues, and ii) labour markets are subject to a static...

Social values shape policy outcomes. We examine the role of postmaterialism, a widely used concept in the social sciences, for the mix of capital and labour taxation chosen by a society. Following political scientist Inglehart, we define the degree of postmaterialism as the relative importance...

We present an applied general equilibrium modelling approach to analyse employment and unemployment effects of labour tax cuts in an economy where wages are determined through firm-union bargaining at the sectoral level. In such a labour market regime, simulations for Germany show that labour...

This paper studies the aggregate and distributional implications of Markov-perfect taxspending policy in a neoclassical growth model with capitalists and workers. Focusing on the long run, our main findings are: (i) it is optimal for a benevolent government, which cares equally about its...