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Poverty and Disequalization

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  • Mookherjee Dilip

    (Boston University)

  • Ray Debraj

    (New York University)

Abstract

We study the intergenerational transmission of inequality using a model in which parents can make both financial and occupational bequests to their children. An equal steady state with high per capita skill can co-exist with unequal steady states with low per capita skill. We investigate dynamics starting from arbitrary initial conditions. The main result is that even if a country starts with a perfectly equal wealth distribution, it converges to an unequal steady state if its initial per capita wealth falls below a threshold, and to the equal steady state otherwise. Hence initial poverty (even with perfect equality) can generate long-term inequality, and undermine economic development.

Suggested Citation

  • Mookherjee Dilip & Ray Debraj, 2010. "Poverty and Disequalization," Journal of Globalization and Development, De Gruyter, vol. 1(1), pages 1-20, January.
  • Handle: RePEc:bpj:globdv:v:1:y:2010:i:1:n:3
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    References listed on IDEAS

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    1. Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, vol. 40(2), pages 219-239, April.
    2. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters,in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 257-298 National Bureau of Economic Research, Inc.
    3. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    4. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-867, June.
    5. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-1064, October.
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