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Ability, Education, and Income Inequality

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  • Buly A. Cardak

Abstract

A model of education where the distribution of abilities is the source of heterogeneity is investigated. Ability is a key determinant of human capital accumulated when young, which in turn determines income and its distribution. The assumption of heterogeneous abilities leads to steady‐state income distributions that exhibit income inequality. Of particular interest is the result that symmetric distributions of ability generate positively skewed income distributions. Models of private and public education are analyzed and compared. It is found that private education results in higher incomes and less income inequality than observed in the public education model.

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  • Buly A. Cardak, 2004. "Ability, Education, and Income Inequality," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(2), pages 239-276, May.
    • Handle: RePEc:bla:jpbect:v:6:y:2004:i:2:p:239-276
    DOI: 10.1111/j.1467-9779.2004.00166.x
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    2. Takashi Kamihigashi & John Stachurski, 2011. "Existence, Stability and Computation of Stationary Distributions: An Extension of the Hopenhayn-Prescott Theorem," Discussion Paper Series DP2011-32, Research Institute for Economics & Business Administration, Kobe University.
    3. , & ,, 2014. "Stochastic stability in monotone economies," Theoretical Economics, Econometric Society, vol. 9(2), May.
    4. Takashi Kamihigashi & John Stachurski, 2012. "Existence, Uniqueness and Stability of Stationary Distributions: An Extension of the Hopenhayn-Prescott Theorem," Discussion Paper Series DP2012-27, Research Institute for Economics & Business Administration, Kobe University.
    5. Haupt, Alexander, 2012. "The evolution of public spending on higher education in a democracy," European Journal of Political Economy, Elsevier, vol. 28(4), pages 557-573.
    6. Takashi Kamihigashi & John Stachurski, 2011. "Stability of Stationary Distributions in Monotone Economies," ANU Working Papers in Economics and Econometrics 2011-561, Australian National University, College of Business and Economics, School of Economics.

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