Public Policies and Education, Economic Growth and Income Distribution

This paper provides an analysis relating economic growth, human capital composition, income distribution and public education policies. In the model human capital is 'lumpy' and only the high skilled carry it. The government chooses capital taxes to nance education, which directly a ects growth, the number of high skilled people and wages. Growth and income equality depend positively on the productivity of the education sector. Analyzing various policies I show that e.g. the preferred policy of the unskilled is growth maximizing, whereas that of skilled labour leads to less education, lower growth and more wage inequality. The paper's public policy analysis provides an explanation for the recent observation of high growth and relatively low income inequality in some highly competitive economies.