Abstract
This paper presents a simple model to investigate the relationship among initial income inequality, education and eco- nomic growth. Public expenditure on education is determined through majority voting. Although preferences of individuals are not single-peaked, the individual with the median income becomes the decisive voter. Our model predicts that high initial inequality has a negative impact on education expenditure and therefore retards economic growth.
Highlights
This paper presents a simple model to investigate the relationship among initial income inequality, education and economic growth
The relationship between initial levels of income inequality and economic growth is a central question in growth and development literature
Standard politico-economic theories predict that, under majority voting, high income inequality is associated with a large scale of redistribution policies as the poor majority favors it
Summary
The relationship between initial levels of income inequality and economic growth is a central question in growth and development literature. SaintPaul and Verdier [2] construct a model in which public education is the channel of redistribution In their model, high income inequality implies strong support for public education, which facilitates human capital accumulation and economic growth. High income inequality implies strong support for public education, which facilitates human capital accumulation and economic growth In contrast to these theories, the hypothesis that high inequality is associated with redistribution is not supported by data. When inequality is high and the income of the median voter is low, he or she does not prefer a high tax rate to enhance education This is because the median voter cannot cover the fixed cost of education or the private return from education is too low due to his or her low level of inherited human capital. High inequality is harmful for human capital accumulation and growth, which is in contrast to the result of Saint-Paul and Verdier [2]
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