Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
966265 | Journal of Macroeconomics | 2007 | 19 Pages |
Abstract
This paper investigates the mechanics through which wealth may, in the long run, trickle down from the rich to the poor. In the presence of indivisibilities in investment of human capital and impossibility of borrowing money, investment in education is financed through an intergenerational transfer. In an OLG model where aggregate production requires capital and both skilled and unskilled labor, it is shown that the long run equilibrium outcome depends on the values of few key parameters. A complete characterization of the steady state is provided. Under some configurations of the parameter values a unique invariant equilibrium exists where inequality vanishes asymptotically. Under others, multiple equilibria exist and the equilibrium outcome crucially depends on the initial conditions of the system. These equilibria are characterized by a negative relationship between inequality and economic development.
Keywords
Related Topics
Social Sciences and Humanities
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Authors
Rainer Andergassen, Franco Nardini,