Income inequality and economic growth with altruistic bequests and human capital investment

Stuart McDonald, Jie Zhang

Research output: Journal PublicationArticlepeer-review

5 Citations (Scopus)

Abstract

In this paper we explore how income inequality affects growth in a dynastic family model with bequests (physical capital) and investment in human capital for children. For tractability, we abstract from factor markets and focus on household production, which is prevalent in developing countries. We explore a joint distribution of bequests and human capital and track the evolution of income distribution across generations. We show that initial inequality has a positive indirect effect on average output growth by lowering the ratio of physical to human capital, besides its standard negative direct effect. If education is mainly privately (publicly) provided, then income inequality retards (promotes) growth outside the balanced growth path. On the balanced growth path, inequality always hinders growth.

Original languageEnglish
Pages (from-to)331-354
Number of pages24
JournalMacroeconomic Dynamics
Volume16
Issue numberSUPPL. 3
DOIs
Publication statusPublished - Nov 2012
Externally publishedYes

Keywords

  • Bequests
  • Growth
  • Human Capital
  • Income Inequality

ASJC Scopus subject areas

  • Economics and Econometrics

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