The Effect of Better Information on Income Inequality

We consider an OLG economy with endogenous investment in human capital. Heterogeneity in individual human capital levels is modelled by a distribution of innate ability across agents. This distribution is common knowledge but, at young age, no agent knows his/her ability. The production of human capital depends on each individual’s investment in education. This investment decision is taken only after observing a signal which is correlated to his/her true ability, and which is used for updating beliefs. Thus, a better information system affects the distribution of human capital in each generation. Assuming separable and identical preferences for all individuals, we derive the following results in equilibrium: (a) If the relative measure of risk aversion is less (more) than 1 then more information raises (reduces) income inequality. (b) When a risk sharing market is available better information results in higher inequality regardless of the measure risk aversion. We are grateful to Alex Cukierman, Zvi Eckstein, Yona Rubinstein and Daniel Tsiddon. An anonymous referee made extremely useful comments and suggestions. Financial support from the German-Israeli Foundation for Scientific Research and Development (GIF) is gratefully acknowledged.     

A theory of persistent income inequality

This paper explores the dynamics of income inequality by studying the evolution of human capital investment and neighborhood choice for a population of families. Parents affect the conditional probability distribution of their children's income through the choice of a neighborhood in which to live. Neighborhood location affects children both through local public finance of education as well as through sociological effects. These forces combine to create incentives for wealthier families to segregate themselves into economically homogeneous neighborhoods. Economic stratification combines with strong neighborhoodwide feedback effects to transmit economic status across generations, leading to persistent income inequality.     

收入不平等对经济增长影响的实证研究

采用联立方程分析方法,实证分析了收入不平等对经济增长影响的三种机制,探讨了收入不平等如何通过影响物质资本投资、人力资本投资和居民消费来作用于经济增长。结果表明,从长期看收入不平等的扩大会刺激物质资本投资,但不利于人力资本投资和居民消费增长,收入不平等对经济增长的长期影响为负。因此,从经济发展的角度政府不应容忍收入不平等的过分扩大。     

How much does schooling disutility matter?

Studies on structural education choice models are often inconsistent in choosing whether and how to include a disutility of education, especially in an environment with risk and wealth inequality. We show that adding a disutility term to the education decision, a human capital investment option, is equivalent to assuming a relationship between wealth, risk, and education. Utility gain from education is increasing in the riskiness of future consumption. A riskier environment further propels an agent to choose the human capital investment option that maximizes future income. If the degree of risk increases heterogeneously across multiple human capital investment options, risk aversion and the precautionary savings motive can compound or negate each other depending on which option has a greater increase in risk.     

Human Capital, Study Effort, and Persistent Income Inequality

The paper shows that if an individual's cost of human capital accumulation depends on his parents' human capital and there exists a "raw labor" sector of production, individuals with low parental human capital may devote little effort in study and become unskilled workers. Further, if an individual exerts little effort in study, the human capital he accumulated may be even less than his parents'. Consequently, his children will have even lower parental human capital than him and they will therefore also become unskilled. Thus, the model shows that even when education is free, income inequality can persist across generations.     

教育体系、收入分布与经济增长

本文使用一个包含物质资本与人力资本积累的世代交叠模型,研究不同的教育体系对经济增长的影响.我们发现,在公立教育体系下,最优的教育投资水平高于私立教育体系,收入差异也将会比在私立教育体系下下降得更快.因此,与私立教育体系相比,公立教育体系更有利于人力资本积累,在公立教育体系下一个国家将会有更高的经济增长率与更为平等的收入分布.     

Technology diffusion and its effects on social inequalities

We develop a dynamic general-equilibrium framework in which growth is driven by skill-biased technology diffusion. The model incorporates leisure–labor decisions and human capital accumulation through education. We are able to reproduce the trends in income inequality and labor and skills supplies observed in the United States between 1969 and 1996. The paper also provides an explanation for why more individuals invest in human capital when the investment premium is going down, and why the skill-premium goes up when the skills supply is increasing.     

Are rich people smarter?

We formulate a general stochastic process of wealth accumulation by capital investment and analyze the conditions required to ensure convergence to the empirically observed Pareto wealth distribution. While homogeneous investment talent leads to the Pareto distribution under very general conditions, even a mild degree of differential investment talent results in a non-Pareto wealth distribution. This finding suggests that chance, rather than differential investment talent, is the dominant factor in the process of wealth accumulation by financial investment. Our findings conform with market efficiency and may have implications regarding the origins, the economic significance, and the social desirability of wealth inequality at the high-wealth range.     

Human capital and income inequality in India: is there a non-linear and asymmetric relationship?

The article attempts to provide empirical evidence on the relationship between human capital and income inequality in India in a non-linear and asymmetric framework. To capture both long-run and short-run asymmetries, we have employed the non-linear autoregressive distributed lag approach using the relevant data from 1970 to 2016. Findings of the article suggest that education expansion acts as a major factor in reducing prevailing high income inequality, that is an increase in average years of schooling results in more equal distribution of income. In contrast, high economic growth, inflation and trade openness create unequal distribution of income. The asymmetric causality test results indicate that there is unidirectional causality running from female human capital, economic growth and inflation to income inequality. From a policy perspective, we suggest that education expansion should be used as a powerful tool to mitigate income inequality by emphasizing the quality of education. At the same time, policies geared towards social benefits, inclusive education, training for unskilled workers and price stability should be encouraged to attain fair income distribution in India.     

技术进步、工资差距与人力资本形成

本文在劳动力异质的假设下通过建立一个二元经济模型分析发展中国家技术进步与收入差距的关系,结果显示技术进步主要通过直接和间接两种途径影响收入差距:其一,通过提高相应劳动力的劳动效率,提高其工资;其二,通过收入差距的扩大,吸引劳动力进行人力资本投资,从而劳动效率的提高,影响其收入.并得也结论,不同类型的技术进步对收入差距的影响存在较大差异,而这种差异在某种程度上影响人力资本投资,因此,在城乡转化的过程中,要缩小收入差距必须选择适当的技术进步,而且还要结合长期经济发展注意保持相应的收入差别.     

Income Inequality, Human Capital Accumulation and Economic Performance

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.     

Does income inequality hinder economic growth? New evidence using Australian taxation statistics

Using taxation statistics, we first derive consistently defined Gini coefficients for the period 1942–2013 for Australia as a whole as well as its eight states and territories. While income inequality exhibited a downward trend until 1979, it has since been on the rise not only over time, but also across states and territories. We then proceed to examine the effect of inequality on economic growth after controlling for changes arising from investment in physical and human capital using available panel data across all states and territories (1986–2013). We find that inequality adversely affects economic growth with a couple of years delay, an outcome consistent with similar studies undertaken in the United States and Europe. Our findings suggest that policymakers can address rising income inequality by implementing measures that support, and enhance, human capital accumulation given its long-run economic and social benefits.     

社会资本对收入水平及差异的影响是扩大还是减少*——来自12省份城市居民的样本

本文基于CHIP（中国家庭收入调查）（2002年）数据,实证研究了我国城市居民的社会资本对其收入水平和差异的影响。在其他条件相同的情况下,居民收入会随着自身社会资本的改善而提高。社会资本对收入差距的影响可以分解为两种不同的机制：（1）即使个体的社会资本相同,由于社会资本的收入回报率的异质性,社会资本在不同的收入群体中会产生扩大收入差距的影响;（2）给定社会资本的收入回报率相同,个体社会资本量的异质性也会扩大收入差距。笔者用分位数回归方法分析了社会资本的收入回报率在不同收入水平上的分布,从而验证了第一类机制。给定社会资本的收入回报率相同,使用夏普利值分解的方法发现,个体社会资本量的异质性会加剧收入差距的扩大,但是这一贡献并没有区域、行业特征等因素显著。随后的实证分析检验了社会资本对收入确实有提高作用,同时也分析出社会资本可能会缩小收入差距。这加深了我们对于社会资本在经济发展中微观机制的理解,并对制定消除收入差距的政策有指导意义。     

Accumulation and distribution of human capital: the interaction between individual and aggregate variables

The paper analyses the joint evolution of accumulation and distribution of human capital in an OLG framework. Dynamics arises from the interplay between human capital distribution and individual variables—inherited human capital and inborn ability. Such interaction drives individual investment in human capital and accumulation in the economy. According to initial distribution the model provides different dynamical behaviours linking growth and inequality; in general economies with a more equal initial distribution grow faster but other cases are possible. Moreover, since the model provides an endogenous threshold for investing in human capital, the distribution is characterised by multi-modality.     

Human Capital and Growth Cycles

This paper studies the dynamic interaction between human capital accumulation and economic growth. Capital market imperfections and an indivisibility in human capital investment prevent poor agents from accumulating skills, the acquisition of which positively affects technological progress. More productive technologies in turn require more sophisticated qualification and involve higher training costs. The equilibrium dynamics can be characterized by the joint evolution of productivity growth, the schooling costs, and the income distribution. Under our assumptions, individual incomes follow a non-linear Markov chain. This non-linearity generates endogenous fluctuations of schooling activities and the rate at which productivity improvements occur. We thank an anonymous referee for many helpful suggestions. Support from the German Research Foundation (DFG) under grant KA1519/2-2 is gratefully acknowledged.     

Redistributive Tax and Growth in a Model with Discrete Occupational Choice

An optimal redistributive tax-subsidy formula is derived for a growth model where income inequality is endogenously driven by an adult's choice of occupation between work and management. Investment in human capital is the engine of growth. The world's stock of exploitable knowledge as well as the economy's average human capital determine the potential rate of return from investment in human capital in an economy. How much available knowledge would be exploited in the economy depends on the proportion of innovators in our model. A redistributive tax reform impacts growth as well as income inequality via its influence over the occupational choice. The optimal redistributive tax rate is path-dependent in the sense that it depends on the initial wealth distribution. The normative implication of the model is that the optimal capital income tax rate could very well be positive if the initial wealth inequality exceeds a threshold. The optimal capital income tax rate depends inversely on the initial wealth inequality.     

人力资本积累、收入分布演化与经济增长

本文建立了一个同时含有物质资本、人力资本积累及收入分布演化的内生增长模型,来研究人力资本积累、收入分布演化与经济增长的相互作用.我们发现,更高的初始收入差异将通过直接降低人力资本增长率与间接提高下一期的物质资本与人力资本比这两个渠道对经济增长率产生负面影响.另一方面,降低收入差异能获得更高的人力资本与经济增长率,这将使得低收入国家有可能追赶上高收入国家.     

中国行业收入不平等问题的解析

进入新世纪以来,中国行业收入不平等有持续扩大的趋势。基于回归方程的Shap-ley分解结果表明,人力资本、所有制、资本投资、技术等因素对行业收入差距有显著影响,其中人力资本对行业收入差距的贡献约为45%,所有制的贡献在20%以上。因此在治理措施上,实施教育均等化,提高教育回报率,开放垄断行业的劳动力市场,推行劳资谈判制度可以有效缓解行业收入差距持续扩大的问题。     

Can the link between functional and personal income distribution enhance the analysis of inequality?

The aim of this paper is to present a framework which links functional and personal income distribution. In the first part of the paper, Piketty’s book “Capital in the XXI Century” is briefly reviewed. Piketty’s framework is discussed arguing that it can only partially explain levels and changes within personal income distribution. Piketty links the returns from capital r to the rate of growth of national income g in a very innovative way comparing them within a macroeconomic framework. He claims that when returns on capital rise more quickly than the overall economy and taxes on capital remain low, a vicious circle of ever-growing dynastic wealth and growing concentration of wealth takes place. However, the rise in the inequality of personal income distribution cannot only be explained by the rise of capital incomes. An analysis of the generation of personal incomes, and consequently of inequality, requires a suitable framework that links incomes at the macroeconomic level (national accounts) and incomes at the level of the individual/household. It is possible to set up this framework starting from individual endowments and their link to the productive structure: that is to what can be called the “generating function of personal income.” This function transforms personal endowments into personal earnings, given the productive structure, the technologies, and the market rules that determine the functional distribution. Personal income distribution and its inequality are linked to the functional one through the shares of capital and labor owned by each individual. The framework introduced here seems to be a suitable tool to account for the fact that personal income distribution is inextricably tied up to different sources of inequality in the distribution of national income. Sources come from institutional and productive structures (matrix Y), but also from the distribution of endowments and of individual/household entitlements (matrix S). This approach, we argue, allows for the assessment and evaluation of the effects of “ambitious new policies,” aimed at reducing poverty and inequality ex-ante, as suggested by Atkinson in his last book.     

公共教育、社会保障与收入分布

本文使用一个世代交叠模型揭示了公共教育与社会保障调节收入分布的作用机制。研究发现,公共教育能够有效地缩小家庭教育投资差距,从而降低收入差异;社会保障则通过减少低收入家庭的劳动供给、增加其有效家庭教育时间来降低收入差异。本文的数值模拟结果显示,在同样的支出水平下公共教育调节收入差异的能力比社会保障更强。并且当存在财政预算约束时,从降低收入差异的角度来看,若财政预算规模较低则应当将资金优先用于公共教育;若财政预算规模较高则应当在公共教育与社会保障之间保持平衡。