Heterogeneous Agents, Human Capital Formation and International Income Inequality
AbstractThe 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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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-015/2.
Date of creation: 01 Feb 2008
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Heterogenous Agents; Human Capital; Poverty Efrap; Income Inequality;
Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
- H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-21 (All new papers)
- NEP-DGE-2008-06-21 (Dynamic General Equilibrium)
- NEP-HRM-2008-06-21 (Human Capital & Human Resource Management)
- NEP-SEA-2008-06-21 (South East Asia)
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