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Human Capital Formation, Income Inequality and Growth

  • Jean-Marie Viaene
  • Itzhak Zilcha

The paper studies the determinants of income distribution and growth in an overlapping generations economy with heterogenous households. Our framework has the following main features: (1) heterogeneity of consumers with respect to wealth and parental human capital; (2) intergenerational transfers are accomplished via investment in the education of the younger generation. Heterogeneity in income results from the distribution of human capital across individuals in a nondegenerate way. The human capital production is affected by the ’home-education’, provided by the parents, as well as the ’public-education’ which is provided equally to all young individuals of the same generation. Due to investments in human capital our economy is an endogenous growth model. First, we explore the effects of technological improvements in the human capital process, upon the distribution of income at each date along the equilibrium path. Second, we study the impact of such technogical progress on growth and relate these results to the income distribution inequality. Third, we provide numerical simulations to quantify the effect of changes in the parameters of the model. Simulation results include exact Gini coefficients and tax rate on labor determined endogenously through majority voting.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 512.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_512
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  1. Park, Kang H., 1996. "Educational expansion and educational inequality on income distribution," Economics of Education Review, Elsevier, vol. 15(1), pages 51-58, February.
  2. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  3. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
  4. Gary S. Becker & Nigel Tomes, . "Human Capital and the Rise and Fall of Families," University of Chicago - Population Research Center 84-10, Chicago - Population Research Center.
  5. Jovanovic, Boyan & Nyarko, Yaw, 1995. "The transfer of human capital," Journal of Economic Dynamics and Control, Elsevier, vol. 19(5-7), pages 1033-1064.
  6. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
  7. 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.
  8. Fernandez, Raquel & Rogerson, Richard, 1998. "Public Education and Income Distribution: A Dynamic Quantitative Evaluation of Education-Finance Reform," American Economic Review, American Economic Association, vol. 88(4), pages 813-33, September.
  9. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
  10. van Marrewijk, Charles, 1999. "Capital Accumulation, Learning, and Endogenous Growth," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 453-75, July.
  11. Fischer, Ronald D & Serra, Pablo J, 1996. "Income Convergence within and between Countries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 531-51, August.
  12. Eckstein, Zvi & Zilcha, Itzhak, 1994. "The effects of compulsory schooling on growth, income distribution and welfare," Journal of Public Economics, Elsevier, vol. 54(3), pages 339-359, July.
  13. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  14. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  15. Cardak, B.A., 1998. "Preferences Over Education Expenditure," Department of Economics - Working Papers Series 623, The University of Melbourne.
  16. Viaene, Jean-Marie & Zilcha, Itzhak, 2002. "Capital markets integration, growth and income distribution," European Economic Review, Elsevier, vol. 46(2), pages 301-327, February.
  17. Karni, E. & Zilcha, I., 1993. "Technological Progress and Income Inequality: A Model with Human Capital and Bequest," Papers 8-93, Tel Aviv - the Sackler Institute of Economic Studies.
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