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Income Inequality, Human Capital Accumulation and Economic Performance

W. Henry Chiu
The Economic Journal
Vol. 108, No. 446 (Jan., 1998), pp. 44-59
Published by: Wiley on behalf of the Royal Economic Society
Stable URL: http://www.jstor.org/stable/2565736
Page Count: 16
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Income Inequality, Human Capital Accumulation and Economic Performance
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Abstract

We show 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 education 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 imply not only higher aggregate human capital accumulated by that generation but an improvement in all subsequent generations' initial income distributions.

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