Essays on Inequality, Human Capital, and Economic Growth
Creators: name: Woolf, Matthew
Publisher: name: The Australian National University
Year: 2023

description: Inequality, human capital, and economic growth are interconnected concepts that have long intrigued economists and policymakers. Though many economists would agree that an economy with low inequality and high growth is ideal, one desired outcome may come at the expense of the other. This thesis develops overlapping generations models to explore the relationship between different forms of inequality (i.e., income, gender, wealth, generational, and wage inequality) and economic growth, focusing on the policies that might reduce the former and increase the latter. The thesis comprises seven chapters. Chapter 1 presents a short overview of the motivation and summaries for each subsequent chapter. Chapter 2 presents stylized facts on inequality and growth in the United States and reviews the theoretical and empirical literature on income inequality and growth which motivates the need for continued research on the topic. Chapters 3-6 contain four essays, each developing a theoretical model and providing simulations calibrated to the United States economy. Chapter 3 focuses on gender inequality and fertility rebound where a childcare price subsidy, education price subsidy, and a joint policy are implemented. In contrast to previous works, it is shown that a childcare price subsidy increases gender inequality and reduces human capital while an education price subsidy has the opposite effect. When both policies are implemented simultaneously, an economy with a high level of human capital and fertility is possible. Chapter 4 focuses on wealth inequality where family wealth impacts the amount a student can borrow for educational investment. Public education, social security, and a joint policy are compared. Public education and a joint policy reduce inequality and promote growth. Social security also reduces inequality but will have an ambiguous impact on growth since it impacts lineages differently depending on their wealth levels. While other studies have compared these policies, wealth inequality has been overlooked. Chapter 5 is also centered around public education, social security, and a joint policy, but integrates endogenous fertility and examines the impact of intergenerational political inequality on policy outcomes. This is the first study to combine endogenous generational voting with endogenous fertility. In contrast to the previous literature, all three policy regimes may reduce per capita human and physical capital at the steady state since endogenous fertility results in physical capital dilution and an increase in the political power of the elderly. Chapter 6 presents an R&amp;D model of wage inequality and automation where innovation benefits skilled labor, yet leaves unskilled labor behind. It is shown that a universal basic income funded by an income tax will reduce inequality, but also reduce growth. Alternatively, a robot tax or joint policy will reduce inequality and increase growth, providing a more optimistic view of policy intervention. Chapter 7 summarizes the main conclusions of the thesis. Overall, the results challenge the idea that economic growth necessarily comes at the expense of inequality and show that, depending on the context, well-crafted public policy can achieve lower inequality and higher economic growth.