This paper offers a supply-side explanation of the cross-country variation in long-run growth and inequality. In the model human capital is 'lumpy' and public education simultaneously affects growth and income inequality. More human capital may increase or decrease growth but also measured inequality. In contrast to some recent contributions the paper uses consistently defined data showing that higher (within-country) inequality is associated with lower growth in rich countries, even when controlling for initial income, education or fertility. Furthermore, rich countries that have a more productive education sector appear to have lower inequality. It is argued that institutions and policies which generate more high-skilled people or enhance the productivity of the education sector seem to affect long-run income equality and growth in a positive way.
 
 

Keywords: Human Capital, Growth, Education, Inequality, Public Policy

JEL Classification: O4, I2, D31, H2
 
 

E-mail: rehme@hrzpub.tu-darmstadt.de