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

Read more

Summary

Introduction

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]

The Model
Preferred Tax Rates
Majority Voting Equilibrium
Findings
The Result

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.