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Human Capital Formation, Income Inequality and Growth

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  • Jean-Marie Viaene

    ()
    (Erasmus University Rotterdam)

  • Itzhak Zilcha

    (The Eitan Berglas School of Economics, Tel Aviv University)

Abstract

The paper studies the determinants of income distribution and growth in an overlapping generations economy withheterogenous households. Our framework has the following main features:heterogeneity of consumers with respect to wealth and parental human capital;intergenerational transfers, accomplished via investment in the education of the younger generation.Heterogeneity in income results from the distribution of human capital acrossindividuals in a non-degenerate way. The human capital production is affected by 'home-education' , provided bythe parents, as well as 'public-education , which is provided equally to all young individuals of the same generation.Due to investments in human capital our economy exhibits endogenous growth. First, we explore the effects oftechnological change in human capital formation, upon the distribution of income at each date along theequilibrium path. Second, we study the impact of such technogical progress on growth and relate these results tothe income distribution inequality. Third, we provide numerical simulations to quantify the effect of changes in theparameters of the model. Simulation results include exact Gini coefficients and tax rate on labor determinedendogenously through majority voting. This discussion paper has lead to publication in: 'Inequality and Growth: Theory and Policy Implications' (2003), (T.S. Eicher, S.J. Turnovsky (eds), 89-117, MIT Press.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 01-104/2.

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Date of creation: 12 Nov 2001
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Handle: RePEc:dgr:uvatin:20010104

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Web page: http://www.tinbergen.nl

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Keywords: Human Capital; Income Distribution; Endogenous Growth;

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  1. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  2. 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.
  3. Corneo, Giacomo & Jeanne, Olivier, 2001. " Status, the Distribution of Wealth, and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(2), pages 283-93, June.
  4. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
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  8. Jovanovic, Boyan & Nyarko, Yaw, 1995. "The transfer of human capital," Journal of Economic Dynamics and Control, Elsevier, vol. 19(5-7), pages 1033-1064.
  9. 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.
  10. 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.
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  12. Eckstein, Zvi & Zilcha, Itzhak, 1994. "The effects of compulsory schooling on growth, income distribution and welfare," Journal of Public Economics, Elsevier, vol. 54(3), pages 339-359, July.
  13. Cardak, B.A., 1998. "Preferences Over Education Expenditure," Department of Economics - Working Papers Series 623, The University of Melbourne.
  14. Eicher, Theo S, 1996. "Interaction between Endogenous Human Capital and Technological Change," Review of Economic Studies, Wiley Blackwell, vol. 63(1), pages 127-44, January.
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  17. 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.
  18. van Marrewijk, Charles, 1999. "Capital Accumulation, Learning, and Endogenous Growth," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 453-75, July.
  19. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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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. Gersbach, Hans & Siemers, Lars-H. R., 2010. "Land Reforms And Economic Development," Macroeconomic Dynamics, Cambridge University Press, vol. 14(04), pages 527-547, September.
  3. 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.
  4. Nicolas Bauduin & Joël Hellier, 2006. "Skill Dynamics, Inequality and Social Policies," Working Papers 34, ECINEQ, Society for the Study of Economic Inequality.
  5. Mehari Mekonnen Akalu, 2002. "Measuring and Ranking Value Drivers," Tinbergen Institute Discussion Papers 02-043/2, Tinbergen Institute.
  6. Nikos Benos, 2004. "Education Policies and Economic Growth," University of Cyprus Working Papers in Economics 4-2004, University of Cyprus Department of Economics.
  7. Carolina Arteaga Cabrales, . "Human Capital Externalities and Growth," Borradores de Economia 631, Banco de la Republica de Colombia.
  8. Nikos Benos, 2005. "Education Systems, Growth and Welfare," University of Cyprus Working Papers in Economics 5-2005, University of Cyprus Department of Economics.
  9. 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.

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