Education and Poverty Trap
An overlapping generations models is constructed in which individual wealth is related to educational attainment, and in which liquidity constraints may induce children to invest in a sub-optimal level of education given their ability. Borrowing for educational attainment is obtained from within the family. Abilities differs among children and may be related to parental ability. Stationary state equilibria are found to exist in which children of poorer families are caught in a poverty trap because of an inability to finance their education. The role of redistributive policy is studied in this context.
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