Education expenditures and human capital: can austerity compromise growth in Portugal?
by Sofia Amaral; Marta Simões
International Journal of Business and Globalisation (IJBG), Vol. 22, No. 4, 2019

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 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.

Online publication date: Fri, 21-Jun-2019

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