This paper develops a three periods OLG growth model where agentsudaccumulate human capital in the first period (benefiting from grandfathersudsavings, public expenditure in education, and human capitaludlevel of their parents), work and save in the second period (earning audsalary proportional to the human capital level accumulated), and retire inudthe thid period, leaving bequest on for the young generation. Governmentudraises taxes on labour and capital in order to finance public expenditureudin education. We derive conditions for equilibrium and for theudrate of growth, and then carry out welfare analysis in order to determineudoptimal taxation in a Nash policy setting.
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