Income distribution and macroeconomics: Fertility adjustment prior to education investment

This paper develops a theory in which households prepare for future education by adjusting the quantity of children they intend to raise. Income inequality lowers output per worker only if the inequality is attributed in some part to unexpected disturbances after childbirth.

Research highlights► Households prepare for future education by adjusting the quantity of children. ► The fertility adjustment moderates the link between inequality and growth. ► Growth is discouraged by unexpected idiosyncratic income shocks after childbirth.