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This paper examines the long run effects of public expenditure on education on time allocation and the growth rate in a two-sector model of endogenous growth with physical and human capital. Individuals accumulate human capital by devoting time to school and public expenditure on education is an input in the human capital technology. The model shows that when the government modifies the proportion of resources assigned to education, the time spent in school may increase, fall or remain constant while the growth rate increases. This result depends on the intertemporal elasticity of substitution, and partially explains why shifts in school attainment of the labor force are not significantly related to the per capita GDP growth rate.

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