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Human Capital Formation, Income Inequality and Growth

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  • Jean-Marie Viaene
  • Itzhak Zilcha

Abstract

The paper studies the determinants of income distribution and growth in an overlapping generations economy with heterogenous households. Our framework has the following main features: (1) heterogeneity of consumers with respect to wealth and parental human capital; (2) intergenerational transfers are accomplished via investment in the education of the younger generation. Heterogeneity in income results from the distribution of human capital across individuals in a nondegenerate way. The human capital production is affected by the ’home-education’, provided by the parents, as well as the ’public-education’ which is provided equally to all young individuals of the same generation. Due to investments in human capital our economy is an endogenous growth model. First, we explore the effects of technological improvements in the human capital process, upon the distribution of income at each date along the equilibrium path. Second, we study the impact of such technogical progress on growth and relate these results to the income distribution inequality. Third, we provide numerical simulations to quantify the effect of changes in the parameters of the model. Simulation results include exact Gini coefficients and tax rate on labor determined endogenously through majority voting.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 512.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_512

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Keywords: Human Capital; income distribution; endogenous growth;

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References

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  1. Mikael Lindahl, 2005. "Home versus School Learning: A New Approach to Estimating the Effect of Class Size on Achievement," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 375-394, 06.
  2. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  3. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  4. Jovanovic, Boyan & Nyarko, Yaw, 1995. "The transfer of human capital," Journal of Economic Dynamics and Control, Elsevier, vol. 19(5-7), pages 1033-1064.
  5. Cardak, B.A., 1998. "Preferences Over Education Expenditure," Department of Economics - Working Papers Series 623, The University of Melbourne.
  6. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers 646, UCLA Department of Economics.
  7. Zvi Eckstein & Itzhak Zilcha, 1991. "The Effects of Compulsory Schooling on Growth, Income Distribution and Welfare," Boston University - Institute for Economic Development 20, Boston University, Institute for Economic Development.
  8. Galor, Oded & Moav, Omer, 1998. "Ability Biased Technological Transition, Wage Inequality and Growth," CEPR Discussion Papers 1972, C.E.P.R. Discussion Papers.
  9. Fischer, Ronald D & Serra, Pablo J, 1996. "Income Convergence within and between Countries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 531-51, August.
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  12. Karni, E. & Zilcha, I., 1993. "Technological Progress and Income Inequality: A Model with Human Capital and Bequest," Papers 8-93, Tel Aviv - the Sackler Institute of Economic Studies.
  13. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  14. van Marrewijk, Charles, 1999. "Capital Accumulation, Learning, and Endogenous Growth," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 453-75, July.
  15. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
  16. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
  17. Fernandez, Raquel & Rogerson, Richard, 1998. "Public Education and Income Distribution: A Dynamic Quantitative Evaluation of Education-Finance Reform," American Economic Review, American Economic Association, vol. 88(4), pages 813-33, September.
  18. Park, Kang H., 1996. "Educational expansion and educational inequality on income distribution," Economics of Education Review, Elsevier, vol. 15(1), pages 51-58, February.
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  24. Knight, John & Li, Shi, 1996. "Educational Attainment and the Rural--Urban Divide in China," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(1), pages 83-117, February.
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Citations

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Cited by:
  1. Sylvain Dessy & Tiana Rambeloma, 2009. "Immigration Policy, Remittances, and Growth in the Migrant-Sending Country," Cahiers de recherche 0915, CIRPEE.
  2. Carolina Arteaga Cabrales, . "Human Capital Externalities and Growth," Borradores de Economia 631, Banco de la Republica de Colombia.
  3. Nikos Benos, 2004. "Education Policies and Economic Growth," University of Cyprus Working Papers in Economics 4-2004, University of Cyprus Department of Economics.
  4. Nicolas Bauduin & Joël Hellier, 2006. "Skill Dynamics, Inequality and Social Policies," Working Papers 34, ECINEQ, Society for the Study of Economic Inequality.
  5. Gersbach, Hans & Siemers, Lars, 2005. "Land Reforms and Economic Development," CEPR Discussion Papers 5184, C.E.P.R. Discussion Papers.
  6. Klump, Rainer & Prüfer, Patricia, 2005. "How to prioritise policies for poverty reduction: Applying Bayesian Model Averaging to Vietnam," Proceedings of the German Development Economics Conference, Kiel 2005 27, Verein für Socialpolitik, Research Committee Development Economics.
  7. Nikos Benos, 2005. "Education Systems, Growth and Welfare," University of Cyprus Working Papers in Economics 5-2005, University of Cyprus Department of Economics.
  8. Klump, R. & Prüfer, P., 2006. "Prioritizing Policies for Pro-Poor Growth: Applying Bayesian Model Averaging to Vietnam," Discussion Paper 2006-117, Tilburg University, Center for Economic Research.
  9. Mehari Mekonnen Akalu, 2002. "Measuring and Ranking Value Drivers," Tinbergen Institute Discussion Papers 02-043/2, Tinbergen Institute.

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