On the Persistence of Inequality in the Distribution of Personal Abilities and Income

Adriaan van Zon () and Hannah Kiiver ()
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Adriaan van Zon: United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology
Hannah Kiiver: Utrecht School of Economics

No 2006-013, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: In this paper we discuss the impact of malnutrition on the distribution of abilities and income in a simple overlapping generations framework. Workers are distributed uniformly over a low-ability and a high-ability range. If workers earn below subsistence wages, the probability that their children will have low abilities is higher than with above subsistence wages due to the malnutrition resulting from low incomes. Using a nested Ethier production function we find that there is an optimal share of low-ability workers in the economy which maximizes output. Due to the intergenerational propagation of low abilities resulting from malnutrition, economies may however get trapped in sub-optimal equilibria with too large shares of low-ability workers. Distributing food coupons financed by taxes of the parent generation to the offspring of these low-ability workers will increase the likelihood that they will be in the high-ability range, permanently increasing output for future generations. Using a numerical example, we show that this type of redistributive policy is welfare improving if the parent generation alive during the initiation of the policy is reimbursed for their loss in utility due to taxes.

Keywords: Income Distribution; Wage Differentials; Skills (search for similar items in EconPapers)
JEL-codes: D31 J31 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2006013

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