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Inequality and growth: why differential fertility matters

  • DE LA CROIX, David
  • DOEPKE, Matthias

We argue the inequality and growth are linked through differential fertility and the accumulation of human capital. We build an overlapping-generations model in which dynasties differ in their initial endowment with human capital. Growth, the income distribution, and fertility are endogenous. Due to a quantity-quality tradeoff, families with less human capital decide to have more children and invest less in education. When initial inequality is high, large fertility differentials lower the growth rate of average human capital, since poor families who invest little in education make up a large fraction of the population in the next generation. A calibrated model shows that this fertility-differential effect is quantitatively important. We also provide empirical evidence to confirm the links between inequality, differential fertility and growth suggested by the model.

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File URL: http://dx.doi.org/10.1257/000282803769206214
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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -1676.

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Handle: RePEc:cor:louvrp:-1676
Note: In : The American Economic Review, 93(4), 1091-1113, 2003
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