In the article, we model education and human capital as major endogenous growth elements in a small open economy general equilibrium framework and consider several policy scenarios for Slovenia. Decrease of the personal income tax rate and increase of government spending on education turned out to be the most effective policy measures. It is important, though, to understand its transitory dynamic. Namely, as education expenditure is increased, certain amount of labour is temporarily withdrawn from its productive use and put into the educational system. Higher skill upgrade of labour requires longer and higher short-term labour force decrease, but also provides us with higher long-term growth. The households that would gain more utility from such policy scenarios are those with more skilled labour and thus higher income level.
Institute for Economic Research, Kardeljeva ploščad 17, 1000 Ljubljana, Slovenia
Publication order reference