Income Inequality, Human Capital Accumulation and Economic Performance

W Henry Chiu

Economic Journal, 1998, vol. 108, issue 446, 44-59

Abstract: The author shows 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 eduation 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 implies not only higher aggregate human capital accumulated by that generation but an improvement in all subsequent generations' initial income distributions.

Date: 1998
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