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Income Inequality and Education Revisited: Persistence, Endogeneity, and Heterogeneity

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  • Mr. David Coady
  • Allan Dizioli

Abstract

This paper presents new results on the relationship between income inequality and education expansion—that is, increasing average years of schooling and reducing inequality of schooling. When dynamic panel estimation techniques are used to address issues of persistence and endogeneity, we find a large, positive, statistically significant and stable relationship between inequality of schooling and income inequality, especially in emerging and developing economies and among older age cohorts. The relationship between income inequality and average years of schooling is positive, consistent with constant or increasing returns to additional years of schooling. While this positive relationship is small and not always statistically significant, we find a statistically significant negative relationship with years of schooling of younger cohorts. Statistical tests indicate that our dynamic estimators are consistent and that our identifying instruments are valid. Policy simulations suggest that education expansion will continue to be inequality reducing. This role will diminish as countries develop, but it could be enhanced through a stronger focus on reducing inequality in the quality of education.

Suggested Citation

  • Mr. David Coady & Allan Dizioli, 2017. "Income Inequality and Education Revisited: Persistence, Endogeneity, and Heterogeneity," IMF Working Papers 2017/126, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/126
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    Cited by:

    1. Mr. Montfort Mlachila & Tlhalefang Moeletsi, 2019. "Struggling to Make the Grade: A Review of the Causes and Consequences of the Weak Outcomes of South Africa’s Education System," IMF Working Papers 2019/047, International Monetary Fund.
    2. Roy, Pronoy & Husain, Zakir, 2019. "Education as a way to reducing inequality: Evidence from India," MPRA Paper 93907, University Library of Munich, Germany.
    3. Daxue Kan & Lianju Lyu & Weichiao Huang & Wenqing Yao, 2022. "The Impact of Urban Education on the Income Gap of Urban Residents: Evidence from Central China," Sustainability, MDPI, vol. 14(8), pages 1-16, April.
    4. Hakim, Dani Rahman & Rosini, Iin, 2022. "Regional Income Inequality in Indonesia: The Role of Public and Private Investment," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 56(3), pages 87-101.
    5. Vanessa Simen Tchamyou, 2020. "Education, lifelong learning, inequality and financial access: evidence from African countries," Contemporary Social Science, Taylor & Francis Journals, vol. 15(1), pages 7-25, January.
    6. Idrissa Ouedraogo & Issa Dianda & Pegdwende Patrik Ouedraogo & Rodrigue Tiraogo Ouedraogo & Bassirou Konfe, 2022. "The effects of taxation on income inequality in sub-Saharan Africa," WIDER Working Paper Series wp-2022-129, World Institute for Development Economic Research (UNU-WIDER).
    7. Nolan, Matt, 2018. "Did tax-transfer policy change New Zealand disposable income inequality between 1988 and 2013?," Working Paper Series 7661, Victoria University of Wellington, Chair in Public Finance.
    8. Gheorghița Dincă & Camelia Negri & Mariana Cassiana Ioniță, 2020. "The Impact Of Income Inequality On Mortality In The European Union," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 2(48), pages 5-17, December.
    9. Sakiru Adebola Solarin & Carmen Lafuente & Luis A. Gil-Alana & Maria Jesus Gonzalez Blanch, 2022. "Inequality Persistence of 21 OECD Countries from 1870 to 2020: Linear and Non-Linear Fractional Integration Approaches," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 164(2), pages 711-725, November.
    10. Reham Rizk & Ronia Hawash, 2020. "Education Gap and Youth: A Growing Challenge in the MENA Region," LIS Working papers 790, LIS Cross-National Data Center in Luxembourg.
    11. Nefo Indra Nizar & Nunung Nuryartono & Bambang Juanda & Akhmad Fauzi, 2024. "Can Knowledge and Culture Eradicate Poverty and Reduce Income Inequality? The Evidence from Indonesia," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 6425-6450, June.
    12. Matondang Elsa Siburian, 2020. "Fiscal Decentralization, Regional Income Inequality, and the Provision of Local Public Goods: Evidence from Indonesia," Working Papers 2001, Waseda University, Faculty of Political Science and Economics.
    13. Zühal Özbay Daş & Gülşah Özşahin, 2021. "An empirical analysis of gentrification in Istanbul," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(3), pages 501-526, June.
    14. Nolan, Matt, 2018. "Did tax-transfer policy change New Zealand disposable income inequality between 1988 and 2013?," Working Paper Series 20842, Victoria University of Wellington, Chair in Public Finance.
    15. Caruso Raul & Antonella Biscione, 2022. "Militarization and Income Inequality in European Countries (2000–2017)," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 28(3), pages 267-285, September.
    16. Joshua Dennis Hall, 2018. "The effects of the quality and quantity of education on income inequality," Economics Bulletin, AccessEcon, vol. 38(4), pages 2476-2489.
    17. Monika Anna Wesołowska, 2024. "Nierówności dochodowe w krajach postsocjalistycznych – analiza wybranych determinant," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 73-90.
    18. Anderson, Edward, 2022. "The correlates of declining income inequality among emerging and developing economies during the 2000s," World Development, Elsevier, vol. 152(C).
    19. Tinh Doan & Lyndall Strazdins & Liana Leach, 2020. "Cost of poor health to the labour market returns to education in Australia: another pathway for socio-economic inequality," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(4), pages 635-648, June.
    20. Sima Siami‐Namini & Conrad Lyford & A. Alexandre Trindade, 2020. "The Effects of Monetary Policy Shocks on Income Inequality Across U.S. States," Economic Papers, The Economic Society of Australia, vol. 39(3), pages 204-221, September.
    21. Angelica Hobjilă, 2019. "The Idea of “Inequality” in Alternative Textbooks for Primary School," Revista romaneasca pentru educatie multidimensionala - Journal for Multidimensional Education, Editura Lumen, Department of Economics, vol. 11(1), pages 301-311, March.
    22. Siburian, Matondang Elsa, 2021. "Fiscal Decentralization, Regional Income Inequality, and the Provision of Local Public Goods: Evidence from Indonesia," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 46(4), pages 87-103, December.
    23. Amalia, Nadira & Moeis, Jossy P. & Arundina, Tika & Pertiwi, Ristiyanti Hayu & Mardhatillah, Amy, 2021. "Impact analysis of religiosity and altruism on multidimensional inequality;," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 517-525.
    24. Tiejun Dai & Fubin Shi, 2023. "Research on differences and influencing factors of inclusive green development in Beijing-Tianjin-Hebei region," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 13(3), pages 1-1.
    25. Almas Heshmati & Jungsuk Kim & Jacob Wood, 2019. "A Survey of Inclusive Growth Policy," Economies, MDPI, vol. 7(3), pages 1-18, July.

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    Keywords

    WP; inequality; income;
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