Income inequality, human capital accumulation and economic performance

Research output: Contribution to journalArticle

Abstract

We show that greater income equality implies higher human capital accumulation and economic performance in an overlapping-generations model with heterogeneity in income and talent. Given liquidity constraints and declining marginal utility, individuals with a given level of talent receive education if their initial income is higher than a threshold level and the threshold is lower for more talented individuals. Assuming the more talented create more human capital when educated, greater initial income equality for one generation then imply not only higher aggregate human capital accumulated by that generation but an improvement in all subseqent generations' initial income distributions.

Bibliographical metadata

Original languageEnglish
Pages (from-to)44-56
Number of pages12
JournalEconomic Journal
Volume108
Issue number446
Publication statusPublished - Jan 1998