Human capital Kuznets curve with subsistence consumption level

We examine the human capital Kuznets curve in a simple model that does not assume increasing returns to scale in human capital formation. With a utility function that specifies a subsistence consumption level, consumption is a necessary good and education is a luxury good. As the children of poor households receive a low level of education, the gap in human capital endowments expands between poor and rich households. Eventually, economic development increases income and expenditure for education, and income inequality declines.

► Human capital Kuznets curve is derived without increasing returns to scale. ► Education is considered to be a luxury good under Stone-Geary preferences. ► Low education level of children from poor households expands the human capital gap. ► Education expenditure rises with economic development reducing income inequality.