Human Capital and Income Distribution Dynamics

The paper assumes a continuum of two period-lived agents; agents are identical except for inherited income. Young agents allocate their inheritance between consumption and investment in human capital under uncertainty. In the second period they receive a wage proportional to the accumulated human capital and invest in offspring. Two main results arise: a low earning per unit of human capital leads economy to converge to a stationary income distribution whatever the initial distribution. Vice-versa, for a sufficiently high wage on endogenous growth operates and the distributive dynamics depends on initial conditions. In this case different redistributive policies are analyzed