Abstract:What are the factors that determine a countrys rate of economic growth in the lung run? The growth model’s in the 1960s assigned a significant role to private investment in physical capital accumulation. Lung-run growth in these models was entirely due to growth in technological progress, which was exogenous to the models. By contrast, contemporary growth theory assigns an important role to accumulation of human (knowledge) capital, at both the aggregate and the individual levels. Moreover, models of 1980s and 1990s generate lung run growth from the ac-tions of individuals in the economy (see Romer 1986; Lucas 1988). In this theoretical context economists have begun to study the influence of education spend-ing on consumption-saving decisions in models which allow the possibility of persistent growth (Glomm and Ravikumar 1992). The recent developments have significant policy implications since public or private expenditures on education may influence lung-run growth and social welfare. To the extent that formal schooling is a significant component of human capital in-vestment, the institutions for schooling may be important for growth (Grandstein, Justmann and Mayer 2005). The aim of this paper is that to analyze in a simple context the relevance of educa-tion financing to make it possible to model endogenous growth even when physical capital accumulation encounters decreasing returns to scale.