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Title:Risky human capital investment, income distribution, and macroeconomic dynamics PDF Logo
Authors:Grossmann, Volker
Issue Date:2003
Series/Report no.:IZA Discussion paper series 955
Abstract:This paper analyzes the interaction between intergenerational wealth transmission, human capital investments under uninsurable labor income risk, and economic growth in a small open overlapping-generations economy with heterogeneous agents. It demonstrates how the role of the personal income distribution for an economy?s process of development through risky human capital accumulation depends on the shape of the saving function. Consistent with recent empirical evidence, the analysis suggests that the impact of higher inequality on the aggregate human capital stock, and thus, on growth may be positive. This result rests on two features of the model, which both are largely supported by empirical evidence. First, as shown under weak conditions, children?s human capital investments are positively affected by parents? income. Second, the marginal propensity to save is increasing in income.
Subjects:growth
income distribution
intergenerational transfers
risky education
saving function
JEL:O11
O40
I20
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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