Essays on growth, human capital, and income distribution

Abstract

The first two chapters present a pair of endogenous growth models with both physical and human capital and a public education input. These papers contribute to the literature on endogenous growth by analyzing a nonrepresentative agent model. That is, agents are permitted to differ in their initial endowment of both types of capital. Using this framework I study the dynamics of the income and wealth distribution and optimal fiscal policy. Existing models of growth and income distribution that are modeled using only human capital typically find a counterfactual income convergence. This pair of models illustrates how convergence is sensitive to the extent of factor markets and to the existence of nonhuman wealth.In regard to fiscal policy, I find that the optimal income tax rate is constant over time and the same for all agents regardless of initial endowments. However, if the tax rates on capital and effective labor income can differ, individuals would be made better off with a low (high) tax on the factor in which they have a relatively large (small) endowment.The third chapter expands the set of policy instruments to include a consumption tax and government debt. It also parameterizes the extent to which the productivity of public educational expenditures depends on the individual's effective learning. The second contribution of this paper is to determine the dynamic path of private debt between individuals in the economy when the degree of congestion in learning varies by region.Finally, empirical studies have shown that credit constraints are prevalent in many developing economies. The existence of imperfect credit markets implies that some agents who would otherwise invest in human capital will remain uneducated due to the inability to borrow or self-finance out of wealth. My fourth chapter investigates the consequence of moving from autarky to free trade in an economy with credit constraints. In particular, I look at how trade impacts wealth, income, and investment in human capital.