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On the role of inequalities and public education expenditures in human capital investment : a theoretical approach

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  • Mohamed Ben Mimoun

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    (TEAM)

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    Abstract

    We show in this paper that greater inequality in the distribution of wealth implies lower investment in higher education levels and lower aggregate income. Liquidity constraints and indivisibility in human capital investment result in the long-run in multiple equilibria with poverty traps. Although the heterogeneity in individual abilities allows economic mobility is not full : poor individuals with low abilities remain poor forever. The effect of the fiscal redistribution on the level of human capital investment is ambiguous unless for higher levels of income inequality where this effect is positive. Education funding policies however, are shown to be more efficient in enhancing human capital investment and rising interclass and intergenerational economic mobility.

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    File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2004/Bla04094.pdf
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    Bibliographic Info

    Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number bla04094.

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    Length: 20 pages
    Date of creation: Nov 2004
    Date of revision:
    Handle: RePEc:mse:wpsorb:bla04094

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    Related research

    Keywords: Wealth inequality; human capital; economic mobility; fiscal redistribution; public education expenditures.;

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    1. 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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    3. Raquel Fernandez & Richard Rogerson, 2003. "Equity and Resources: An Analysis of Education Finance Systems," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 858-897, August.
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    11. Glomm, Gerhard, 1997. "Parental choice of human capital investment," Journal of Development Economics, Elsevier, vol. 53(1), pages 99-114, June.
    12. Gerhard Glomm & Michael Kaganovich, 2003. "Distributional Effects of Public Education in an Economy with Public Pensions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 917-937, 08.
    13. Driskill, Robert A & Horowitz, Andrew W, 2002. "Investment in Hierarchical Human Capital," Review of Development Economics, Wiley Blackwell, vol. 6(1), pages 48-58, February.
    14. Hongyi Li & Lyn Squire & Heng-fu Zou, 1998. "Explaining International and Intertemporal Variations in Income Inequality," CEMA Working Papers 73, China Economics and Management Academy, Central University of Finance and Economics.
    15. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
    16. repec:fth:prinin:366 is not listed on IDEAS
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