TAX POLICY AND HUMAN-CAPITAL ACCUMULATION IN A RESOURCE-CONTAINED GROWING DUAL ECONOMY

This article examines the role tax policy can play in fostering human capital accumulation in a resource-constrained dual economy whose popu lation is growing. The study shows how human capital accumulation, in turn, affects the intersectoral terms of trade and the economic growth process of such an economy, The dual economy is assumed to consist of two sectors, agriculture and manufacturing. Production in agriculture requires unskilled labor; land, and capital, whereas production in th e manufacturing sector requires skilled and unskilled labor and capita l Schooling facilities are limited, and access is rationed by the gove rnment. Moreover; schooling requires an investment of time. This artic le demonstrates the existence of a unique short-run equilibrium It als o demonstrates that the steady state equilibrium is unique and locally stable. Comparative steady stare analysis suggests that a balanced bu dget increase in public investment in education (financed by a tax inc rease on capital income or incomes of skilled workers) alters the term s of trade between agriculture and manufacturing sectors and favorably affects the economic growth process.