This paper focuses on an investigation of public policy aimed at increasing social welfare via resource redistribution, focusing on productive public spending such as investments in health and education. The study applies the theories of the Edgeworth Box model and the Social welfare function in understanding the dynamics between allocations, inequality and the level of welfare within society. These basic models are then expanded by analyzing the impact of augmenting the production possibility frontier on both the ultimate outcome in the Edgeworth box and the on the level of welfare in society. We hypothesize that productive public spending, inclusive of both investments in health and education, will impact the outcome represented in the Edgeworth box in such a way that it reduces inequality and impacts the production frontier such that it increases the level of output that the economy produces. A review of literature is included, after which a model specification is designed to empirically test the relationships described in the hypothesis. The results show that there is statistical evidence to suggest that health spending has an enhancing effect on output, but that it also increases inequality. On the other hand, education spending has a reductive effect on inequality but it also decreases economic output. Finally, we discuss the limitations of this study and make recommendations for future research.
Luz, Karlena G., "An Analysis of the Modern Social State" (2014). Senior Independent Study Theses. Paper 6947.
International Economics | Public Economics
Bachelor of Arts
Senior Independent Study Thesis
© Copyright 2014 Karlena G. Luz