IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/4056.html
   My bibliography  Save this paper

A Theory of Persistent Income Inequality

Author

Listed:
  • Steven N. Durlauf

Abstract

This paper explores the dynamics of income inequality by studying the evolution of human capital investment and neighborhood choice for a population of families. Parents affect the conditional probability distribution of their children's income through the choice of a neighborhood in which to live. Neighborhood location affects children through two mechanisms. First, the level of education depends on the total income of a neighborhood, as all school funding is determined by majority voting. Human capital markets are incomplete as neighborhoods cannot borrow to supplement tax revenues available for education. Second, the conditional probability distribution of individual-specific productivity shocks is affected by the income distribution within a neighborhood. This dependence reflects cultural influences such as the presence in a community of successful role models. These forces interact to endogenously stratify the economy as families segregate themselves into economically homogeneous neighborhoods. Our model has two important features. First, starting from identical initial conditions, families can exhibit different long term income levels, leading to persistent income inequality. Second, areas of permanent poverty can emerge endogenously in a growing economy as neighborhood-wide feedback effects transmit poverty across generations.

Suggested Citation

  • Steven N. Durlauf, 1992. "A Theory of Persistent Income Inequality," NBER Working Papers 4056, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4056
    Note: EFG
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w4056.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Abhijit V. Banerjee & Andrew F. Newman, 1991. "Risk-Bearing and the Theory of Income Distribution," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 211-235.
    2. George E. Johnson & Frank P. Stafford, 1973. "Social Returns to Quantity and Quality of Schooling," Journal of Human Resources, University of Wisconsin Press, vol. 8(2), pages 139-155.
    3. David Card & Alan Krueger, 1990. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Working Papers 645, Princeton University, Department of Economics, Industrial Relations Section..
    4. Russell Cooper & Andrew John, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 441-463.
    5. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-867, June.
    6. Card, David & Krueger, Alan B, 1992. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 1-40, February.
    7. Steven N. Durlauf, 1993. "Nonergodic Economic Growth," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 349-366.
    8. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Industrialization and the Big Push," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1003-1026, October.
    9. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    10. Streufert, Peter, 2000. "The Effect of Underclass Social Isolation on Schooling Choice," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(4), pages 461-482.
    11. Westhoff, Frank, 1977. "Existence of equilibria in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 14(1), pages 84-112, February.
    12. Mary Jo Bane & David T. Ellwood, 1986. "Slipping into and out of Poverty: The Dynamics of Spells," Journal of Human Resources, University of Wisconsin Press, vol. 21(1), pages 1-23.
    13. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
    14. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-493, May.
    15. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-1189, December.
    16. Mary Corcoran & Roger H. Gordon & Deborah Laren & Gary Solon, 1989. "Effects of Family and Community Background on Men's Economic Status," NBER Working Papers 2896, National Bureau of Economic Research, Inc.
    17. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
    18. 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 818-834, August.
    19. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
    20. repec:fth:prinin:265 is not listed on IDEAS
    21. Roland Benabou, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 619-652.
    22. Datcher, Linda P, 1982. "Effects of Community and Family Background on Achievement," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 32-41, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Raquel Fernandez, 2001. "Sorting, Education and Inequality," NBER Working Papers 8101, National Bureau of Economic Research, Inc.
    2. Steven N. Durlauf, 1997. "The Memberships Theory of Inequality: Ideas and Implications," Research in Economics 97-05-047e, Santa Fe Institute.
    3. Piketty, Thomas, 2000. "Theories of persistent inequality and intergenerational mobility," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 8, pages 429-476, Elsevier.
    4. Fernández, Raquel, 2001. "Sorting, Education and Inequality," CEPR Discussion Papers 3020, C.E.P.R. Discussion Papers.
    5. Grossmann, Volker, 2008. "Risky human capital investment, income distribution, and macroeconomic dynamics," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 19-42, March.
    6. Samuel Bowles & Glenn C. Loury & Rajiv Sethi, 2014. "Group Inequality," Journal of the European Economic Association, European Economic Association, vol. 12(1), pages 129-152, February.
    7. Ben-Halima, B. & Chusseau, N. & Hellier, J., 2014. "Skill premia and intergenerational education mobility: The French case," Economics of Education Review, Elsevier, vol. 39(C), pages 50-64.
    8. Dennis N. Epple & Richard Romano, 2003. "Neighborhood Schools, Choice, and the Distribution of Educational Benefits," NBER Chapters, in: The Economics of School Choice, pages 227-286, National Bureau of Economic Research, Inc.
    9. Brezis, Elise S. & Hellier, Joël, 2018. "Social mobility at the top and the higher education system," European Journal of Political Economy, Elsevier, vol. 52(C), pages 36-54.
    10. Edward L. Glaeser & Jose Scheinkman, 2000. "Non-Market Interactions," NBER Working Papers 8053, National Bureau of Economic Research, Inc.
    11. Lundberg, Shelly & Startz, Richard, 1998. "On the Persistence of Racial Inequality," Journal of Labor Economics, University of Chicago Press, vol. 16(2), pages 292-323, April.
    12. Elisa S. Brezis & Joel Hellier, 2016. "Social Mobility and Higher-Education Policy," Working Papers 095, "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi.
    13. Shea, John, 2000. "Does parents' money matter?," Journal of Public Economics, Elsevier, vol. 77(2), pages 155-184, August.
    14. Hellier, Joël, 2017. "Stratified higher education,social mobility at the top and efficiency: The case of the French ‘Grandes écoles’," MPRA Paper 76724, University Library of Munich, Germany.
    15. Azariadis, Costas & Stachurski, John, 2005. "Poverty Traps," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 5, Elsevier.
    16. Murat F. Iyigun, 1995. "Economic development and intergenerational economic mobility," International Finance Discussion Papers 524, Board of Governors of the Federal Reserve System (U.S.).
    17. Steven N. Durlauf, 1996. "Statistical Mechanics Approaches to Socioeconomic Behavior," NBER Technical Working Papers 0203, National Bureau of Economic Research, Inc.
    18. Saint-Paul, Gilles, 1997. "The role of rents to human capital in economic development," Journal of Development Economics, Elsevier, vol. 53(2), pages 229-249, August.
    19. Rauh, Christopher, 2017. "Voting, education, and the Great Gatsby Curve," Journal of Public Economics, Elsevier, vol. 146(C), pages 1-14.
    20. Christopher Rauh, 2015. "The Political Economy of Early and College Education - Can Voting Bend the Great Gatsby Curve?," 2015 Meeting Papers 82, Society for Economic Dynamics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4056. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.