An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility

Becker, Gary S.; Tomes, Nigel

doi:10.1086/260831

Cited by 1,632 publications

(1,211 citation statements)

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“…In effect, the assumption of incomplete financial markets being adopted here is playing the role of the progressive tax structure in their analysis. Another strand of literature, initially developed by Becker and Tomes (1979), Krusell and Smith (1998) and others, shows if agents are initially identical but are subject to idiosyncratic shocks, then this will lead to a long-run non-degenerate wealth distribution, just as we obtain here. A third body of literature, which assumes that the only source of heterogeneity is due to the initial endowments of capital, obtains non-degenerate long-run distributions of wealth and income that are directly tied to the initial distribution.…”

Section: Proposition 1: (I)supporting

confidence: 68%

Productive government spending and its consequences for the growth–inequality tradeoff

Getachew

Turnovsky

2015

Research in Economics

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This paper investigates the effects of productive government spending on the relationship between growth and inequality in an economy subject to idiosyncratic production shocks and heterogeneous endowments. Assuming lognormal distributions, we derive tractable closed form solutions describing the equilibrium dynamics. We show how the effect of government investment on the equilibrium dynamics of both inequality and growth depends crucially upon the elasticity of substitution between public and private capital in production. This has important consequences for the growth-and welfaremaximizing rates of government investment. Finally, we supplement our theoretical analysis with numerical simulations, calibrated to approximate the productive characteristics of a real world economy. With the empirical evidence strongly supporting the complementarity between public and private capital, our simulations suggest that conclusions based on the commonly employed Cobb-Douglas production function may be seriously misleading.Key words: Government investment; Idiosyncratic shocks; Growth; Inequality JEL Classification: D31, O41 Revised versionJune 2015*The paper has benefited from comments received on earlier versions from seminar participants at the University of Durham and the University of Pretoria. We also thank Santanu Chatterjee for useful suggestions. Research for this paper was carried out while Getachew was visiting the University of Washington in the Fall of 2013. Turnovsky"s research was supported in part by the Van Voorhis endowment at the University of Washington.**Corresponding author: sturn@u.washington.edu 1 IntroductionThe role of public investment in infrastructure as a source of economic growth continues to be widely debated in both developing and advanced economies, with different economies adopting different policy options. Several emerging-market countries including India, China, and Brazil have undertaken extensive public investment, to which their high growth rates of recent years may at least in part be attributed. In contrast, several European countries have reduced public spending, as they have pursued austerity measures intended to deal with concerns related to their rising debt levels.Contemporaneously with these diverse policies toward public investment, we have witnessed increasing income inequality, both in emerging markets and in most OECD countries. This raises the important question that we address in this paper, namely the relationship between public investment directed toward growth enhancement and its consequences for income inequality.Interest in the relationship between public investment, output, and growth has a long history, dating back to Arrow and Kurz (1970), who examined it in the context of a neoclassical economy.Beginning with Barro (1990), an extensive literature has evolved addressing the issue in an endogenous growth framework, with a general consensus that government spending on infrastructure can yield significant productivity gains and thus enhance growth. See e.g. F...

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Section: Proposition 1: (I)supporting

confidence: 68%

Productive government spending and its consequences for the growth–inequality tradeoff

Getachew

Turnovsky

2015

Research in Economics

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“…This survey was conducted in 1981, and it contains responses to a set of questions regarding each respondent's use of time during the 5 Since parents generally argue that schools set standards below what parents would like and higher education requires considerable parental contribution, this specification seems natural. For instance, National Survey of Student Engagement 2000 Report argues that there is a mismatch between what many postsecondary institutions say they want from students and the level of performance for which they actually hold students accountable.…”

Section: Differences In Study Time Across Studentsmentioning

confidence: 99%

“…Parents, while comparing the cost and the return of a college education, implicitly set a standard for their child to meet. 5 The framework used in this paper is related to that of Weinberg (2001), which models children as utility maximizing agents whose behavior is affected by their parents' incentive schemes and also assumes that parents and children have different preferences over the child's action (similar to the preferences used in this paper). Weinberg (2001) then emphasizes the role of parental incentives in human capital accumulation and argues that at low incomes parents' ability to provide incentives through reward/punishment schemes is limited.…”

Section: Introductionmentioning

confidence: 99%

The Incentive Effects of Higher Education Subsidies on Student Effort

Şahin

2004

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper uses a game-theoretic model to analyze the disincentive effects of low-tuition policies on student effort. The model of parent and student responses to tuition subsidies is then calibrated using information from the National Longitudinal Survey of Youth 1979 and the High School and Beyond Sophomore Cohort: 1980-92. I find that although subsidizing tuition increases enrollment rates, it reduces student effort. This follows from the fact that a highsubsidy, low-tuition policy causes an increase in the percentage of less able and less highly motivated college graduates. Additionally-and potentially more important-all students, even the more highly motivated ones, respond to lower tuition levels by decreasing their effort levels. This study adds to the literature on the enrollment effects of low-tuition policies by demonstrating how high-subsidy, low-tuition policies have both disincentive effects on students' study time and adverse affects on human capital accumulation.

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“…Nevertheless, it is important to do so both to understand how labor market works in general and how human capital and earnings are transmitted across generations in particular (Piketty, 1998;Solon, 1999;Bowles and Gintis, 2002;and Nathan and Mulligan, 2002, Becker and Tomes, 1979.…”

Section: Introductionmentioning

confidence: 99%

Parental education and wages: Evidence from China

Chen

Feng

2011

Front. Econ. China

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. Using nationally representative data in China, we find substantial positive partial correlations of both parents' education with one's wage. In addition, returns to father's education are higher in more monopsonistic and less meritocratic labor markets, including non-coastal regions, the state-owned sector, and the early periods of the reform era. The opposite is, however, true with respect to mother's education. Overall, the empirical evidence is consistent with the story that father's education mainly indicates family connections useful for locating a better-paying first job, while mother's education primarily captures unmeasured ability.JEL Classification: J30, J62

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An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility

Cited by 1,632 publications

References 19 publications

Productive government spending and its consequences for the growth–inequality tradeoff

Productive government spending and its consequences for the growth–inequality tradeoff

The Incentive Effects of Higher Education Subsidies on Student Effort

Parental education and wages: Evidence from China

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