This paper is the first empirical framework that explains the phenomenon of fast growthcombined with the demographic transition occurring in the United States since 1860. Ipropose a structural model that unifies those events through the role of education: the keyfeature is that parental education determines simultaneously fertility, mortality and children'seducation, so that the accumulation of education from one generation to another explains bothfast growth and the reduction of fertility and mortality rates. Using original data, the model isestimated and fits in a remarkable way income, the distribution of education and agepyramids. Moreover, some historical data on Blacks, assumed to constitute the bottom of thedistribution of education, show that the model predicts correctly the joint distribution offertility and education, and that of mortality and education. Comparisons with the PSIDsuggest that the intergenerational correlation of income is also well captured. Thus, thismicrofunded growth model based on human capital accumulation accounts for many traits ofAmerican economic development since 1860. In a second step, I investigate the long-runinfluence of income inequality on growth. Because children's human capital is a concavefunction of parental income, income inequality slows down the accumulation of humancapital across generations and hence growth. Simulations show that this effect is large.
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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number
dp0765.
Find related papers by JEL classification: D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General N00 - Economic History - - General - - - General O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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