Multiple Equilibria and Stability Analysis of an Economic Growth Model With Human Capital Externalities And Endogenous Time Preferences

Abstract

This thesis develops a model to analyze the growth and ¯scal policy implica- tions in a model in which there exists an externality through the aggregate human capital. We endogenize the individual rate of time preferences and our results show that individuals that are more patient invest more in human capital. The model is solved along the balanced growth path. There exist a low growth equilibrium in which agents put less weight on human capital in the utility function. Whereas there exist multiple growth paths if agents value human capital more. Further, we perform a stability analysis. The results of the model ¯nd that human capital generates positive externalities. Our analysis implies that in the presence of these externalities there is lower optimal government taxation.