Notesale: Turn your study into money

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Why does income inequality persist?
Lack of education leads to lack of human capital
Poor nutrition: means underdevelopment and inability to work
Social networks: can lead to lack of self belief
Extractive institutions have an incentive to keep the poor, poor (kleptocracy)
Credit constraints: inability to invest in human capital
Location is endogenous: neighbourhood effect
-the poor reside in an area, so it stays poor and opportunities decrease
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A low threshold means more equal countries have higher fraction of families trapped in poverty/ converging to the low
income steady-state
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gap between low skilled UK and Indian is relatively large
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Scandanavian/ homogeneous countries have higher taxation
Equality of income generates equality of opportunity
Although there is a belief that inequality is beneficial
-in the Solow model, the key to growth is accumulation of capital: Rich save at a higher rate

Physical versus Human capital
It is easier to distinguish usage of physical capital than human capital (non-observable)
Human capital has strong decreasing returns at the the individual level
However, a country cannot grow just by investing in physical capital
? (2004) find that in terms of the accumulation over time of physical and human capital, initially, physical capital is the
main engine of growth, but eventually human capital becomes the main driver, and equality of income is actually more
beneficial
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50 a month tuition for their children
But Mr and Mrs Obamza spend over $20 a month on alcohol and cell phones
Bloch-Rao-Desai (2004) emphasise the prestige motive underlying marriage expenses
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Rao (2001) finds that festivals amount to 15% of households expenditures in rural India
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(2008) finds that households in South Africa spend the equivalent of a year’s income for an adult’s funeral
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Charles-Hurst-Roussanov (2009) found that college educated spent about 13% less than their high school educated
counterparts on visible expenditures,
Pinker (2003) believed status was in our genes, and conspicuous consumption is universal
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(2007) found that mating goals in men increase their willingness to spend on conspicuous luxuries
(and display heroism or dominance)
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Artists should encourage young people to invest responsibly in stable, long-term
assets
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Related literature: Conspicuous Consumption
Background:
Veblen (1899) and others
Formal models: Study the implications of conspicuous consumption wrt market prices and savings
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)
Dynan et al (2004) found that higher lifetime income households save a larger fraction of their permanent income
Their findings are consistent with hyperbolic discounting and variation in Social Security replacement rates
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