Governmental Education Policy with Private Education Investment-Evidence from China

By using a two-period overlapping generations model, our paper conducts a macroeconomic simulation in Shenyang City, China to examines the effects of education subsidies on human capital accumulation and economic growth. The main results are firstly that in the case without education subsidy, the economic growth on the steady state would be 12.5 percent, and it would increase by 13.01 percent if the government could increase the current education subsidy rate by 1.7 percent. Secondly, during the transition path, the growth rate regarding consumption both in young and old period, capital stock and education investment could be decreased. However, those rates could be higher after the economy reaches its steady in the long-run.