Failure to accumulate human capital is one of the pressing problems of developing
countries. Lacking human capital formation bears consequences on an economy wide level, since
education contributes to labor productivity. We examine the impact of increased school
enrollment with regard to economic growth and income inequality. A dynamic computable
general equilibrium (DCGE) model applying a 2000 SAM for Tanzania is used to evaluate the
quantitative long-term effects of increased school attendance on overall economic growth and
welfare. In order to get an insight in how a potential skill upgrade would affect the economy, we
simulate a government program that aims at increasing primary school enrollment. We find that
an increase in human capital formation in the long run leads to higher economic growth rates and
increases household incomes in a Pareto sense. The results show that the positive effects of
enhanced human capital formation are rather moderate in terms of the distribution of the gains
from economic growth and hence income inequality does not change substantially