The relationship between public education expenditure and economic growth: The case of India

The paper reviews the theoretical and the empirical case for public investment in education in India. Though the theoretical literature provides a backing for such a policy, the empirical literature fails to find a robust relation between education expenditure and growth. Expenditure on education is a necessary but not a sufficient condition for growth. It seems that the effectiveness of education expenditure depends on the institutional and labour market characteristics of the economy. The effectiveness of education investments also depends on other factors such as trade openness. Due to these aforesaid factors, we argue that the empirical relation between education expenditure and growth for India has been inconsistent.

Anticipation, Learning and Welfare: the Case of Distortionary Taxation

We study the impact of anticipated fiscal policy changes in a Ramsey economy where agents form long-horizon expectations using adaptive learning. We extend the existing framework by introducing distortionary taxes as well as elastic labour supply, which makes agents. decisions non-predetermined but more realistic. We detect that the dynamic responses to anticipated tax changes under learning have oscillatory behaviour that can be interpreted as self-fulfilling waves of optimism and pessimism emerging from systematic forecast errors. Moreover, we demonstrate that these waves can have important implications for the welfare consequences of .scal reforms. (JEL: E32, E62, D84)