Title: Education expenditures and human capital: can austerity compromise growth in Portugal?

Authors: Sofia Amaral; Marta Simões

Addresses: Faculty of Economics, University of Coimbra, Av. Dias da Silva 165, 3004-512 Coimbra, Portugal ' CeBER and GEMF, Faculty of Economics, University of Coimbra, Av. Dias da Silva 165, 3004-512 Coimbra, Portugal

Abstract: We estimate a trivariate VAR model with public expenditures on education, schooling levels and output and perform cointegration, causality and impulse response analysis for the period 1975-2008 to investigate whether the recent expansion of the Portuguese public education system fostered higher output levels highlighting human capital accumulation as the mechanism that connects the two variables. The data used in this study was retrieved from http://www.pordata.pt and the necessary calculations were done using the econometric package GRETL. The results indicate that a change in public expenditures on education has a positive effect on output in Portugal, supporting in this way education spending as an expansionary fiscal policy instrument that can alleviate the downturn in output in the short-term. The long-term role of education spending is however less clear since we were not able to find a long-run equilibrium relationship between our variables.

Keywords: public expenditures on education; human capital; schooling; economic growth; cointegration; causality; impulse response; VAR; Portugal.

DOI: 10.1504/IJBG.2019.100248

International Journal of Business and Globalisation, 2019 Vol.22 No.4, pp.696 - 715

Received: 17 Nov 2016
Accepted: 24 Feb 2017
Published online: 21 Jun 2019 *

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