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Income Inequality, Human Capital Accumulation and Economic Performance

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  • Chiu, W Henry

Abstract

The author shows that greater income equality implies higher human capital accumulation and economic performance in an overlapping-generations model with heterogeneity in income and talent. Given liquidity constraints and declining marginal utility, individuals with a given level of talent receive eduation if their initial income is higher than a threshold level and the threshold is lower for more talented individuals. Assuming the more talented create more human capital when educated, greater initial income equality for one generation then implies not only higher aggregate human capital accumulated by that generation but an improvement in all subsequent generations' initial income distributions.

Suggested Citation

  • Chiu, W Henry, 1998. "Income Inequality, Human Capital Accumulation and Economic Performance," Economic Journal, Royal Economic Society, vol. 108(446), pages 44-59, January.
  • Handle: RePEc:ecj:econjl:v:108:y:1998:i:446:p:44-59
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    3. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters,in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92 National Bureau of Economic Research, Inc.
    4. Clarke, George R. G., 1995. "More evidence on income distribution and growth," Journal of Development Economics, Elsevier, vol. 47(2), pages 403-427, August.
    5. Barro, Robert J. & Lee, Jong-Wha, 1993. "International comparisons of educational attainment," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 363-394, December.
    6. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    7. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-867, June.
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