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“TIME-RELEASE” OUTPUT RESPONSES TO PUBLIC EDUCATION EXPENDITURES

Published online by Cambridge University Press:  11 January 2021

Bebonchu Atems  and
William Blankenau
Bebonchu Atems
Affiliation:
Clarkson University
William Blankenau*
Affiliation:
Kansas State University
*
Address correspondence to: William Blankenau, Department of Economics, Kansas State University, 327 Waters Hall, Manhattan, Kansas 55606-4001, USA. e-mail: blankenw@ksu.edu. Phone: 785-532-6340.
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Abstract

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This paper argues that output can respond to public education spending in a delayed and persistent manner through human capital accumulation. We refer to this as a “time-release” response, reflecting that the output response grows as students exposed to increased expenditures sequentially enter the labor market. We first develop and calibrate a stochastic overlapping generations model to formalize the propagation of spending shocks over a long time horizon. We then empirically explore this time-release aspect of shocks to government education expenditures on output using US state-level data for the period 1963–2016 and a panel structural vector autoregression methodology. Consistent with the model, our empirical results show that the dynamic response of output to shocks to government education expenditures is positive, significant, and long-lasting.

Keywords

Education SpendingOverlapping Generations ModelVector Autoregressions
Type
Articles
Information
Macroeconomic Dynamics , Volume 26 , Issue 6 , September 2022 , pp. 1483 - 1521
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
Copyright
© Cambridge University Press 2021

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