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Educational choice, endogenous inequality and economic development

  • Andergassen, Rainer
  • Nardini, Franco

This paper investigates the mechanics through which wealth may, in the long run, trickle down from the rich to the poor. In the presence of indivisibilities in investment of human capital and impossibility of borrowing money, investment in education is financed through an intergenerational transfer. In an OLG model where aggregate production requires capital and both skilled and unskilled labour, it is shown that the long run equilibrium outcome depends on the values of few key parameters. A complete characterisation of the steady state is provided. Under some configurations of the parameter values a unique invariant equilibrium exists where inequality vanishes asymptotically. Under others, multiple equilibria exist and the equilibrium outcome crucially depends on the initial conditions of the system. These equilibria are characterised by an negative relationship between inequality and economic development.

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File URL: http://www.sciencedirect.com/science/article/pii/S0164-0704(07)00045-6
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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 29 (2007)
Issue (Month): 4 (December)
Pages: 940-958

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Handle: RePEc:eee:jmacro:v:29:y:2007:i:4:p:940-958
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  1. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  2. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October.
  3. Daron Acemoglu, 2001. "Directed Technical Change," NBER Working Papers 8287, National Bureau of Economic Research, Inc.
  4. 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 274-98, April.
  5. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-58, December.
  6. Mookherjee, Dilip & Ray, Debraj, 2002. "Persistent Inequality," Discussion Paper 57, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  7. Kiminori Matsuyama, 2000. "Endogenous Inequality," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 743-759.
  8. Dilip Mookherjee & Debraj Ray, 2002. "Is Equality Stable?," American Economic Review, American Economic Association, vol. 92(2), pages 253-259, May.
  9. Thomas Piketty, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 173-189.
  10. Bandyopadhyay, Debasis, 1997. "Distribution of Human Capital and Economic Growth," Working Papers 157, Department of Economics, The University of Auckland.
  11. Debasis Bandyopadhyay & Parantap Basu, 2005. "What drives the cross-country growth and inequality correlation?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1272-1297, November.
  12. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
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