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Heterogeneous Agents, Human Capital Formation and International Income Inequality

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Author Info
Haris Munandar () (Bureau of Economic Research, Bank of Indonesia, Jakarta)

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Abstract

The paper examines the effect of heterogeneity in individual human capital formation on cross-country income inequality. It considers a two-country model of overlapping generation heterogeneous economies with the following features: (1) individuals are heterogeneous with respect to inborn ability and parental human capital; (2) intergenerational transfers take place via public investment in education financed by tax, and parental education; (3) due to variation in individual human capital, we have endogenous heterogeneity both in labor supply and in parents’ participation in self-educating their offspring. Besides exploring cross-country variation in public education, how its low level can lead to a poverty trap and how its high level can result in an increasing society’s effective human capital, we study the effects of capital markets integration, in equilibrium, on the intra-generational income inequality in both the investing and receiving countries.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-015/2.

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Date of creation: 01 Feb 2008
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Handle: RePEc:dgr:uvatin:20080015

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Related research
Keywords: Heterogenous Agents; Human Capital; Poverty Efrap; Income Inequality;

Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education

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References listed on IDEAS
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  1. 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.
  2. Spiros Bougheas & Raymond Riezman, 2005. "Trade and the Distribution of Human Capital," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  3. Chiswick, Barry R, 1971. "Earnings Inequality and Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 85(1), pages 21-39, February. [Downloadable!] (restricted)
  4. Orazem, Peter & Tesfatsion, Leigh, 1997. " Macrodynamic Implications of Income-Transfer Policies for Human Capital Investment and School Effort," Journal of Economic Growth, Springer, vol. 2(3), pages 305-29, September. [Downloadable!] (restricted)
    Other versions:
  5. Daron Acemoglu, 2002. "Cross-Country Inequality Trends," NBER Working Papers 8832, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. 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. [Downloadable!] (restricted)
  7. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Blackwell Publishing, vol. 63(2), pages 237-64, April. [Downloadable!] (restricted)
  8. Brunello, Giorgio & Checchi, Daniele, 2005. "School quality and family background in Italy," Economics of Education Review, Elsevier, vol. 24(5), pages 563-577, October. [Downloadable!] (restricted)
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  9. Hanushek, Eric A., 2002. "Publicly provided education," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 30, pages 2045-2141 Elsevier. [Downloadable!] (restricted)
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  10. 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.
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  11. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-77, September. [Downloadable!] (restricted)
  12. Glaeser, Edward L., 1994. "Why does schooling generate economic growth?," Economics Letters, Elsevier, vol. 44(3), pages 333-337. [Downloadable!] (restricted)
  13. 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.
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