Human Capital Formation With Heterogeneous Agents, Sustainable Debt Policies and Growth: Who Benefits from Fiscal Policy Rules?

We study an endogenous growth model with publicly funded human capital accumulation and with public debt, where we allow for heterogeneous households. One household acquires human capital while the other remains low -skilled. Aggregate production is a function of physical capital and of highskilled and low -skilled labor. The government can run into debt, but, sticks to the inter -temporal budget constraint. We analyze the steady state and we investigate effects of fiscal policy on long -run growth and on the distribution of welfare. Further, we analyze effects of switching from a balanced government budget to permanent public deficits taking into account transition dynamics.