On the Persistence of Inequality in the Distribution of Personal Abilities and Income

van Zon, Adriaan and Kiiver, Hannah (2006). On the Persistence of Inequality in the Distribution of Personal Abilities and Income. UNU-MERIT.

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  • Sub-type Working paper
    Author van Zon, Adriaan
    Kiiver, Hannah
    Title On the Persistence of Inequality in the Distribution of Personal Abilities and Income
    Publication Date 2006
    Place of Publication Maastricht, NL
    Publisher UNU-MERIT
    Pages 31
    Abstract In this paper we discuss the impact of malnutrition on the distribution of abilities and income in a simple overlapping generations framework. Workers are distributed uniformly over a low-ability and a high-ability range. If workers earn below subsistence wages, the probability that their children will have low abilities is higher than with above subsistence wages due to the malnutrition resulting from low incomes. Using a nested Ethier production function we find that there is an optimal share of low-ability workers in the economy which maximizes output. Due to the intergenerational propagation of low abilities resulting from malnutrition, economies may however get trapped in sub-optimal equilibria with too large shares of low-ability workers. Distributing food coupons financed by taxes of the parent generation to the offspring of these low-ability workers will increase the likelihood that they will be in the high-ability range, permanently increasing output for future generations. Using a numerical example, we show that this type of redistributive policy is welfare improving if the parent generation alive during the initiation of the policy is reimbursed for their loss in utility due to taxes.
    Copyright Holder UNU-MERIT
    Copyright Year 2006
    Copyright type All rights reserved
    ISSN 18719872
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    Created: Wed, 11 Dec 2013, 16:07:23 JST