Education, Economic Growth and Personal Income Inequality Across Countries

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. These relationships are then discussed in the context of growth regressions. In contrast 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 is associated with lower growth. 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.