Human Capital and Cross-Country Comparison of Inequality

The paper studies the effects of cross-country differences in the productionprocess of human capital on income distribution and growth. Our overlapping gen-erations economy has the following features: (1) consumers are heterogenous withrespect to parental human capital and wealth; (2) intergenerational transfers takeplace via parental education and, public investments in education financed by taxes(possibly, with a level determined by majority voting); (3) due to investment inhuman capital, which is a factor of production, we have endogenous growth. Weexplore several types of cross-country variations in the production of human capi-tal, some attributed to 'home-education' and others related to 'public-education',and their effect upon intragenerational income inequality and growth along theequilibrium path. We also indicate how the level of public education affects humancapital formation and the conditions leading to poverty traps.