Delhi School of Economics

This paper analyses the contribution of teachers in a public education system and its implication for growth. We focus exclusively on two teacher-speci\u85c inputs (teacher quality and teacher quantity), and two student-speci\u85c inputs (ability and e¤ort). We argue that all these factors enter separately in the education technology and therefore have di¤erential impact of the process of human capital formation. In a public educa-tion system where teachersremunerations are paid by the goverment and \u85nanced by taxation, for any given amount of government revenue, there exists a trade-o ¤ between teacher quality and teacher quantity. At the same time, the imposed tax rate has an impact on the e¤ort choice of an agent. Thus human capital formation and growth in the model depends on a complex interaction between teacher quality, teacher quantity, student ability and student e¤ort. In this context we discuss the optimal education policy as well the optimal taxation policy of the government