ABSTRACT:

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 directly affects growth, the number of high-skilled people and wages. Growth and income equality are shown to depend in an important way on the composition of human capital and the productivity of the education sector. Contrary to some recent results the data show that when controlling for initial income or the educational mix of the labour force, higher (within-country) inequality (significantly) implies lower growth for a typical country in the period 1960-90. Furthermore, countries with a more productive education sector have lower inequality. Thus, 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: Growth, Distribution, Education, Public Policy

JEL Classification: O4, I2, D31, H2
 
 

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