Human capital, social mobility and the skill premium

This paper considers the role of human capital accumulation of agents differentiated by skill type in the joint determination of social mobility and the skill premium. Our approach allows us to evaluate the dynamic e¤ects of tax reforms and education spending policies on economic e¢ ciency as well as on social and wage inequality. The analysis contributes to the literature by showing that endogenous so- cial mobility, human capital for skilled and unskilled labour, and exter- nalities from skilled human capital on social mobility are key channels through which tax-spending policy is transmitted.