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

IMF Working Papers, May 26, 2017

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

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Bibliographic details

• Authors: David Coady, Allan Dizioli
• Published: May 26, 2017
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475595741.001

Summary of main findings

• The paper presents new results on the relationship between income inequality and education expansion (increasing average years of schooling and reducing inequality of schooling).
• Dynamic panel estimation techniques that address persistence and endogeneity reveal:
  • 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.
  • A positive relationship between income inequality and average years of schooling, consistent with constant or increasing returns to additional years of schooling.
  • The positive relationship with average years of schooling is small and not always statistically significant, but there is a statistically significant negative relationship with years of schooling of younger cohorts.
• Statistical tests indicate that the dynamic estimators used are consistent and that the identifying instruments are valid.

Methods and econometric considerations

• Uses dynamic panel estimation techniques to address issues of persistence and endogeneity.
• Conducts statistical tests to assess consistency of estimators and validity of identifying instruments.

Policy simulations and implications

• Policy simulations suggest that education expansion will continue to be inequality reducing.
• The inequality-reducing role of education expansion will diminish as countries develop.
• The role could be enhanced through a stronger focus on reducing inequality in the quality of education.

Subject areas and keywords

• Subject: Education, Estimation techniques, Income distribution, Income inequality, Population and demographics
• Keywords: income, inequality, WP

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