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Risky Human Capital Investment, Income Distribution, and Macroeconomic Dynamics

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Author Info
Volker Grossmann

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Abstract

This paper demonstrates that the role of the personal income distribution for an economy's process of development through risky human capital accumulation critically depends on the shape of the saving function. Empirical evidence for the U.S. strongly suggests that the marginal propensity to save is increasing in income, a property which so far has not been allowed for in the literature on human capital, income distribution and macroeconomics. Doing so, the present analysis suggests that the impact of higher inequality on the aggregate human capital stock, and thus, on growth is positive under rather weak conditions. Results heavily rely on a positive impact of parents. income on children's human capital investments, which holds under standard assumptions on labor income risk and risk aversion in the model, and is largely supported by empirical evidence.

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Publisher Info
Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c009_028.

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Length: 55 pages
Date of creation: Jun 2004
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Handle: RePEc:deg:conpap:c009_028

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Related research
Keywords: Growth; Income Distribution; Intergenerational Transfers; Risky Education; Saving Function;

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Find related papers by JEL classification:
I20 - Health, Education, and Welfare - - Education - - - General
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nikos Benos, 2004. "Education Policies and Economic Growth," University of Cyprus Working Papers in Economics 4-2004, University of Cyprus Department of Economics. [Downloadable!]
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