The growth–distribution nexus in a mixed regime of education with a status motive: On the macroeconomics of the welfare state

Abstract

We develop a growth model with human capital accumulation to study the effects of status-driven motivation on individuals' choice between public or private education. This choice interacts with and exacerbates the effects of status, with implications for growth and distribution. More motivated individuals work harder and choose private education. In a majority voting/median voter setup, individuals choose a public education size for which there is no trade-off between long-term growth and inequality. We also highlight the conflict of interest between individuals with respect to the size of the public education sector and the tax rate that supports it. We thus highlight important interactions between the macroeconomy, social attitudes and educational institutions and derive results of interest in a variety contexts. We end by drawing policy conclusions among which, the idea that in democracies, higher growth and lower inequality are mutually compatible when the government promotes public education.