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Heterogeneous Agents, Human Capital Formation and International Income Inequality

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  • Haris Munandar

    ()
    (Bureau of Economic Research, Bank of Indonesia, Jakarta)

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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Bibliographic Info

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

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  1. 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.
  2. Jong-Wha Lee & Robert J. Barro, 1997. "Schooling Quality in a Cross Section of Countries," NBER Working Papers 6198, National Bureau of Economic Research, Inc.
  3. Daron Acemoglu, 2002. "Cross-Country Inequality Trends," NBER Working Papers 8832, National Bureau of Economic Research, Inc.
  4. 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.
  5. Giorgio Brunello & Daniele Checchi, 2003. "School Quality and Family Background in Italy," Working Papers 2003.10, Fondazione Eni Enrico Mattei.
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  7. Chiswick, Barry R, 1971. "Earnings Inequality and Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 85(1), pages 21-39, February.
  8. 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.
  9. 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.
  10. 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.
  11. Laitner, John, 1993. "Intergenerational and interhousehold economic links," Handbook of Population and Family Economics, in: M. R. Rosenzweig & Stark, O. (ed.), Handbook of Population and Family Economics, edition 1, volume 1, chapter 5, pages 189-238 Elsevier.
  12. Glaeser, Edward L., 1994. "Why does schooling generate economic growth?," Economics Letters, Elsevier, vol. 44(3), pages 333-337.
  13. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 237-64, April.
  14. 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.
  15. Jean-Marie Viaene & Itzhak Zilcha, 2002. "Human Capital and Cross-Country Comparison of Inequality," Tinbergen Institute Discussion Papers 02-036/2, Tinbergen Institute.
  16. Spiros Bougheas & Raymond Riezman, 2005. "Trade and the Distribution of Human Capital," CESifo Working Paper Series 1475, CESifo Group Munich.
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