Income Inequality and Education Revisited: Persistence, Endogeneity, and Heterogeneity

May 26, 2017

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David Coady, and Allan Dizioli. Income Inequality and Education Revisited: Persistence, Endogeneity, and Heterogeneity, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper presents new results on the relationship between income inequality and education expansion—that is, increasing average years of schooling and reducing inequality of schooling. When dynamic panel estimation techniques are used to address issues of persistence and endogeneity, we find a large, positive, statistically significant and stable relationship between inequality of schooling and income inequality, especially in emerging and developing economies and among older age cohorts. The relationship between income inequality and average years of schooling is positive, consistent with constant or increasing returns to additional years of schooling. While this positive relationship is small and not always statistically significant, we find a statistically significant negative relationship with years of schooling of younger cohorts. Statistical tests indicate that our dynamic estimators are consistent and that our identifying instruments are valid. Policy simulations suggest that education expansion will continue to be inequality reducing. This role will diminish as countries develop, but it could be enhanced through a stronger focus on reducing inequality in the quality of education.

Subject: Education, Estimation techniques, Income distribution, Income inequality, Population and demographics

Keywords: Income, Inequality, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/126
Stock No:

WPIEA2017126
ISBN:

9781475595741
ISSN:

1018-5941

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