Human Capital and Cross-Country Comparison of Inequality

The paper studies the effects of cross-country differences in the production process of human capital on income distribution and growth. Our overlapping gen- erations economy has the following features: (1) consumers are heterogenous with respect to parental human capital and wealth; (2) intergenerational transfers take place via parental education and, public investments in education financed by taxes (possibly, with a level determined by majority voting); (3) due to investment in human capital, which is a factor of production, we have endogenous growth. We explore 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 the equilibrium path. We also indicate how the level of public education affects human capital formation and the conditions leading to poverty traps.