On the role of inequalities and public education expenditures in human capital investment : a theoretical approach
We show in this paper that greater inequality in the distribution of wealth implies lower investment in higher education levels and lower aggregate income. Liquidity constraints and indivisibility in human capital investment result in the long-run in multiple equilibria with poverty traps. Although the heterogeneity in individual abilities allows economic mobility is not full : poor individuals with low abilities remain poor forever. The effect of the fiscal redistribution on the level of human capital investment is ambiguous unless for higher levels of income inequality where this effect is positive. Education funding policies however, are shown to be more efficient in enhancing human capital investment and rising interclass and intergenerational economic mobility.
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