EDUCATION CHOICE, GROWTH AND INEQUALITY: FIERCE TIGERS OR CUDDLY PANDAS?

Abstract

This paper discusses the relationship between education choice, economic growth and income inequality in an endogenous growth model with state-dependent learning tech¬ nology. The difference in the human capital accumulation results in heterogeneity in equilibrium parenting decision. We show that parents' education choices change differ¬ ently with altruism and parenting cost when they adopt different parenting styles. On the balanced growth path, the economic growth of the heterogenous economy converges to the growth rate of the subpopulation with the parenting style that accumulates hu¬ man capital at a higher rate, implying insiginificant contributions from the other subpopulation. This shows that the role of differential ability is limited in the widening income inequality along the balanced growth path. In particular, the widening income inequality is caused by income polarisation between different socioeconomic subgroups.