IDEAS home Printed from https://ideas.repec.org/p/tin/wpaper/20010104.html
   My bibliography  Save this paper

Human Capital Formation, Income Inequality and Growth

Author

Listed:
  • Jean-Marie Viaene

    (Erasmus University Rotterdam, the Netherlands)

  • Itzhak Zilcha

    (The Eitan Berglas School of Economics, Tel Aviv University, Israel)

Abstract

The paper studies the determinants of income distribution and growth in an overlapping generations economy withheterogenous households. Our framework has the following main features:heterogeneity of consumers with respect to wealth and parental human capital;intergenerational transfers, accomplished via investment in the education of the younger generation.Heterogeneity in income results from the distribution of human capital acrossindividuals in a non-degenerate way. The human capital production is affected by 'home-education' , provided bythe parents, as well as 'public-education , which is provided equally to all young individuals of the same generation.Due to investments in human capital our economy exhibits endogenous growth. First, we explore the effects oftechnological change in human capital formation, upon the distribution of income at each date along theequilibrium path. Second, we study the impact of such technogical progress on growth and relate these results tothe income distribution inequality. Third, we provide numerical simulations to quantify the effect of changes in theparameters of the model. Simulation results include exact Gini coefficients and tax rate on labor determinedendogenously through majority voting. This discussion paper has lead to publication in: 'Inequality and Growth: Theory and Policy Implications' (2003), (T.S. Eicher, S.J. Turnovsky (eds), 89-117, MIT Press.

Suggested Citation

  • Jean-Marie Viaene & Itzhak Zilcha, 2001. "Human Capital Formation, Income Inequality and Growth," Tinbergen Institute Discussion Papers 01-104/2, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20010104
    as

    Download full text from publisher

    File URL: https://papers.tinbergen.nl/01104.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
    2. Theo S. Eicher, 1996. "Interaction Between Endogenous Human Capital and Technological Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(1), pages 127-144.
    3. Oded Galor & Omer Moav, 2000. "Ability-Biased Technological Transition, Wage Inequality, and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(2), pages 469-497.
    4. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-867, June.
    5. Eckstein, Zvi & Zilcha, Itzhak, 1994. "The effects of compulsory schooling on growth, income distribution and welfare," Journal of Public Economics, Elsevier, vol. 54(3), pages 339-359, July.
    6. Viaene, Jean-Marie & Zilcha, Itzhak, 2002. "Capital markets integration, growth and income distribution," European Economic Review, Elsevier, vol. 46(2), pages 301-327, February.
    7. Cardak, B.A., 1998. "Preferences Over Education Expenditure," Department of Economics - Working Papers Series 623, The University of Melbourne.
    8. Jovanovic, Boyan & Nyarko, Yaw, 1995. "The transfer of human capital," Journal of Economic Dynamics and Control, Elsevier, vol. 19(5-7), pages 1033-1064.
    9. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 35-52.
    10. Fischer, Ronald D & Serra, Pablo J, 1996. "Income Convergence within and between Countries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 531-551, August.
    11. Giacomo Corneo & Olivier Jeanne, 2001. "Status, the Distribution of Wealth, and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(2), pages 283-293, June.
    12. Park, Kang H., 1996. "Educational expansion and educational inequality on income distribution," Economics of Education Review, Elsevier, vol. 15(1), pages 51-58, February.
    13. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 257-298, National Bureau of Economic Research, Inc.
    14. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    15. repec:bla:scandj:v:103:y:2001:i:2:p:283-93 is not listed on IDEAS
    16. Fernandez, Raquel & Rogerson, Richard, 1998. "Public Education and Income Distribution: A Dynamic Quantitative Evaluation of Education-Finance Reform," American Economic Review, American Economic Association, vol. 88(4), pages 813-833, September.
    17. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-834, August.
    18. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    19. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
    20. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    21. Karni, Edi & Zilcha, Itzhak, 1993. "Technological Progress and Income Inequality: A Model with Human Capital and Bequest," Foerder Institute for Economic Research Working Papers 275576, Tel-Aviv University > Foerder Institute for Economic Research.
    22. Mikael Lindahl, 2005. "Home versus School Learning: A New Approach to Estimating the Effect of Class Size on Achievement," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 375-394, June.
    23. Knight, John & Li, Shi, 1996. "Educational Attainment and the Rural--Urban Divide in China," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(1), pages 83-117, February.
    24. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 501-526.
    25. Tamura, Robert, 1991. "Income Convergence in an Endogenous Growth Model," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 522-540, June.
    26. repec:bla:ecorec:v:75:y:1999:i:228:p:63-76 is not listed on IDEAS
    27. van Marrewijk, Charles, 1999. "Capital Accumulation, Learning, and Endogenous Growth," Oxford Economic Papers, Oxford University Press, vol. 51(3), pages 453-475, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carolina Arteaga Cabrales, 2011. "Human Capital Externalities and Growth," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 29(66), pages 12-47, December.
    2. Jakub Bartak & Łukasz Jabłoński, 2020. "Inequality and growth: What comes from the different inequality measures?," Bulletin of Economic Research, Wiley Blackwell, vol. 72(2), pages 185-212, April.
    3. Niko Gobbin & Glenn Rayp, 2008. "Different ways of looking at old issues: a time-series approach to inequality and growth," Applied Economics, Taylor & Francis Journals, vol. 40(7), pages 885-895.
    4. Sylvain Dessy & Tiana Rambeloma, 2009. "Immigration Policy, Remittances, and Growth in the Migrant-Sending Country," Cahiers de recherche 0915, CIRPEE.
    5. Nicolas Bauduin & Joël Hellier, 2006. "Skill Dynamics, Inequality and Social Policies," Working Papers 34, ECINEQ, Society for the Study of Economic Inequality.
    6. Guido Baldi, 2013. "Physical And Human Capital Accumulation And The Evolution Of Income And Inequality," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(3), pages 57-83, September.
    7. Ooft, Gavin & Eckhorst, Karel, 2013. "Human Capital Development and Economic Growth in Suriname," EconStor Preprints 215530, ZBW - Leibniz Information Centre for Economics.
    8. Nikos Benos, 2005. "Education Systems, Growth and Welfare," University of Cyprus Working Papers in Economics 5-2005, University of Cyprus Department of Economics.
    9. Nikos Benos, 2004. "Education Policies and Economic Growth," University of Cyprus Working Papers in Economics 4-2004, University of Cyprus Department of Economics.
    10. Niko Gobbin & Glenn Rayp & Dirk Van de gaer, 2007. "Inequality And Growth: From Micro Theory To Macro Empirics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(4), pages 508-530, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jean‐Marie Viaene & Itzhak Zilcha, 2009. "Human Capital and Inequality Dynamics: The Role of Education Technology," Economica, London School of Economics and Political Science, vol. 76(304), pages 760-778, October.
    2. Viaene, Jean-Marie & Zilcha, Itzhak, 2002. "Capital markets integration, growth and income distribution," European Economic Review, Elsevier, vol. 46(2), pages 301-327, February.
    3. Viaene, Jean-Marie & Zilcha, Itzhak, 2002. "Public education under capital mobility," Journal of Economic Dynamics and Control, Elsevier, vol. 26(12), pages 2005-2036, October.
    4. McDonald, Stuart & Zhang, Jie, 2012. "Income Inequality And Economic Growth With Altruistic Bequests And Human Capital Investment," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S3), pages 331-354, November.
    5. Hatsor, Limor, 2012. "Occupational choice: Teacher quality versus teacher quantity," Labour Economics, Elsevier, vol. 19(4), pages 608-623.
    6. 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.
    7. Isaac Ehrlich & Jinyoung Kim, 2007. "The Evolution of Income and Fertility Inequalities over the Course of Economic Development: A Human Capital Perspective," Journal of Human Capital, University of Chicago Press, vol. 1(1), pages 137-174.
    8. Bernhard Eckwert & Itzhak Zilcha, 2007. "The Effect of Better Information on Income Inequality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(2), pages 287-307, August.
    9. Eicher, Theo S. & Garcia-Penalosa, Cecilia, 2001. "Inequality and growth: the dual role of human capital in development," Journal of Development Economics, Elsevier, vol. 66(1), pages 173-197, October.
    10. Michele Bernasconi & Paola Profeta, 2007. "Redistribution or Education? The Political Economy of the Social Race," CESifo Working Paper Series 1934, CESifo.
    11. Gradstein, Mark & Justman, Moshe, 1997. "Democratic Choice of an Education System: Implications for Growth and Income Distribution," Journal of Economic Growth, Springer, vol. 2(2), pages 169-183, July.
    12. Gunther Rehme, 2002. "(Re)Distribution of Personal Incomes, Education and Economic Performance Across Countries," WIDER Working Paper Series DP2002-34, World Institute for Development Economic Research (UNU-WIDER).
    13. Bernasconi, Michele & Profeta, Paola, 2012. "Public education and redistribution when talents are mismatched," European Economic Review, Elsevier, vol. 56(1), pages 84-96.
    14. Zilcha, Itzhak, 2003. "Intergenerational transfers, production and income distribution," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 489-513, March.
    15. Grossmann, Volker, 2008. "Risky human capital investment, income distribution, and macroeconomic dynamics," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 19-42, March.
    16. Günther Rehme, 2007. "Education, Economic Growth and Measured Income Inequality," Economica, London School of Economics and Political Science, vol. 74(295), pages 493-514, August.
    17. Benabou, Roland, 2005. "Inequality, Technology and the Social Contract," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 25, pages 1595-1638, Elsevier.
    18. Kirill Borissov & Stefano Bosi & Thai Ha-Huy & Leonor Modesto, 2017. "Heterogeneous Human Capital, Inequality and Growth: The Role of Patience and Skills," EUSP Department of Economics Working Paper Series 2017/03, European University at St. Petersburg, Department of Economics.
    19. Matilde Isabela Angarita Serrano, 2021. "Entre becas y aulas: ¿Cómo cerramos la brecha?," Documentos CEDE 18901, Universidad de los Andes, Facultad de Economía, CEDE.
    20. Mauricio Armellini & Parantap Basu, 2010. "Altruism, Education Subsidy and Growth," EERI Research Paper Series EERI_RP_2010_21, Economics and Econometrics Research Institute (EERI), Brussels.

    More about this item

    Keywords

    Human Capital; Income Distribution; Endogenous Growth;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F2 - International Economics - - International Factor Movements and International Business
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tin:wpaper:20010104. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tinbergen Office +31 (0)10-4088900 (email available below). General contact details of provider: https://edirc.repec.org/data/tinbenl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.