Since 2014
Does Income Inequality Reduce Growth?
Economic Analysis Review
View Archive Info| Field | Value | |
| Title |
Does Income Inequality Reduce Growth?
Does Income Inequality Reduce Growth? |
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| Creator |
Fischer, Ronald
Serra, Pablo |
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| Subject |
—
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| Description |
This paper examines the effects of inequality on the rate of growth of an economy. We assume that it is easier for an individual to achieve a given level of human capiral the higher society's average level of human capiral. Agents with above average human capital find it relatively more costly to acquire additional human capital, while agents with below average human capital find it relatively cheaper to acquire additional human capital. The existence of such an externality implies that even when where is no income inequality agents will behave inefficiently. In order to achieve the optimal growth rate, a lump sum tax must be combined with a subsidy to investment in education. When incomes are heterogenous, we show that income convergence is attained in the long run. We also show that the effect of inequality on the growth rate of an economy depends on the functional form of the externality. When the externality junction is concave, income dispersion reduces the rate of growth. On the other hand, when the externality function is convex, the effect is ambiguous.
Does Income Inequality Reduce Growth? |
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| Publisher |
Universidad Alberto Hurtado - Facultad de Economía y Negocios
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| Contributor |
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| Date |
2010-03-09
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| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion — — |
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| Format |
application/pdf
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| Identifier |
http://www.rae-ear.org/index.php/rae/article/view/205
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| Source |
Revista de Análisis Económico - Economic Analysis Review; Vol 8, No 1 (1993); 99-111
Revista de Análisis Económico – Economic Analysis Review; Vol 8, No 1 (1993); 99-111 0718-8870 0716-5927 |
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| Language |
eng
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| Relation |
http://www.rae-ear.org/index.php/rae/article/view/205/465
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