Working Paper: CEPR ID: DP995
Authors: Roland Benabou
Abstract: This paper develops a simple model of human capital accumulation and community formation by heterogeneous families, which provides an integrated framework for analysing the local determinants of inequality and growth. Five main conclusions emerge. First, minor differences in education technologies, preferences, or wealth, can lead to a high degree of stratification. Imperfect capital markets are not necessary, but will compound these other sources. Second, stratification makes inequality in education and income more persistent across generations. Whether the same is true of inequality in total wealth depends on the ability of the rich to appropriate the rents created by their secession. Third, the polarization of urban areas resulting from individual residential decisions can be quite inefficient, both from the point of view of aggregate growth and in the Pareto sense, especially in the long run. Fourth, when state-wide equalization of school expenditures is insufficient to reduce stratification, it may improve educational achievement in poor communities much less than it lowers it in richer communities; thus average academic performance and income growth both fall. Yet it may still be possible for education policy to improve both equity and efficiency. Fifth, because of the cumulative nature of the stratification process, it is likely to be much harder to reverse once it has run its course than to arrest at an early stage.
Keywords: education; income distribution; human capital; growth; inequality; stratification; local public goods
JEL Codes: D31; I22; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| minor differences in education technologies, preferences, or wealth (I24) | high degree of stratification (P39) |
| stratification (Z13) | persistence of inequality in education and income across generations (I24) |
| community dynamics (Z13) | income distribution (D31) |
| urban polarization due to residential decisions (R23) | negative impact on aggregate growth (F62) |
| statewide equalization of school expenditures fails to reduce stratification (I24) | lower educational achievement in poorer communities (I24) |
| lower educational achievement in poorer communities (I24) | overall decline in average academic performance and income growth (D29) |
| initial stratification (L10) | long-term inequality (J70) |