Inequality of opportunity and inequality of efforta canonical growth model

Resumen

Theoretical and empirical studies exploring the e§ects of income in- equality upon growth reach a disappointing inconclusive result. Some recent empirical papers have emphasized that one reason for this ambi- guity could be that income inequality is actually a composite measure of inequality of opportunity (IO) and inequality of e§ort (IE). These types of inequality would a§ect growth through opposite channels, so the relationship between inequality and growth would depend on which component is larger. Based on this preliminary empirical result, we build an intergenerational model with human capital of inequality and development. The existence of a trap in the process of human capi- tal accumulation generates multiplicity of equilibria and permits the inclusion of social mobility in the analysis. The model is able to explain how IO and IE a§ect human capi- tal accumulation and hence ongoing long-run growth. The existence of social mobility in society makes the relationship between income in- equality and growth to be non-linear, and the Önal sign of the ináuence of inequality on growth to be dependent on the degree of development and overall inequality of the economy. We Önd that IE is generally beneÖcial to human capital accumulation and, therefore, to ongoing growth, while IO positively a§ects human capital (income) only for less developed economies