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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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