Abstract:
We present a neo-classical model that explores the determinants of growth-inequality correlation and attempts to reconcile the
seemingly conflicting evidence on the nature of growth-inequality relationship. The initial distribution of human capital determines the
long run income distribution and the growth rate by influencing the occupational choice of the agents. The steady state proportion of
adults that innovates and updates human capital is path-dependent. The output elasticity of skilled-labor, barriers to knowledge
spillovers, and the degree of redistribution determine the range of steady state equilibria. From a calibration experiment we report
that a combination of a skill-intensive technology, low barriers to knowledge spillovers, and a high degree of redistribution
characterize the group of countries with a positive growth-inequality
relationship. A negative relationship arises in the group with the opposite characteristics.
