Investments into Education: Doing as the Parents Did

Georg Kirchsteiger, Alexander Sebald*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


Empirical evidence suggests that parents with higher levels of education generally attach a higher importance to the education of their children. This implies an intergenerational chain transmitting the attitude towards the formation of human capital from one generation to the next. We incorporate this intergenerational chain into an OLG-model with endogenous human capital formation. In absence of any state intervention such an economy might be characterized by multiple steady states with low or high human capital levels. There are also steady states where the population is permanently divided into different groups with differing human capital and welfare levels. Compulsory schooling is needed to overcome steady states with low human capital and welfare levels. Tax financed education subsidies can lead to further pareto-improvements.
Original languageEnglish
JournalEuropean Economic Review
Issue number4
Pages (from-to)501-516
Number of pages16
Publication statusPublished - May 2010
Externally publishedYes


  • Human capital formation
  • Illiterateness trap
  • Compulsory schooling
  • Education subsidy

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