Journal of Economic Growth

, Volume 16, Issue 1, pp 71–98 | Cite as

Parental nurturing and adverse effects of redistribution

Article

Abstract

This paper suggests that if parental nurturing is a dominating force in human capital formation then income redistribution may not promote economic growth. In particular, if, consistently with empirical evidence, parental human capital complements investment in a child’s education and yields increasing returns in the intergenerational production of human capital, income redistribution may have an adverse impact on the growth rate of average human capital. Redistribution shifts resources towards the less educationally-productive families and thus in the presence of credit markets imperfections and increasing returns, it reduces the aggregate level of investment in human capital. Moreover, if the degree of increasing returns is sufficiently large to produce sustained growth, this adverse effect on human capital formation may outweigh the conventional beneficial effects of redistribution that arises from the interaction between a production technology exhibiting diminishing returns and credit market imperfections.

Keywords

Heterogeneous ability Parental input in education Endogenous growth Dynamic efficiency Progressive income tax Progressive education subsidy 

JEL classification

D61 E24 E62 O11 

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Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.Department of Economics, OGGB (Level 6)University of AucklandAucklandNew Zealand
  2. 2.School of Accounting, Economics and FinanceDeakin UniversityBurwood EastAustralia

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