Inequality and Growth: Why Differential Fertility Matters

TLDR

Poor parents tend to have many children while investing little in education. The study develops a new theoretical link between inequality and growth. The model shows that fertility and education decisions are interdependent, and that a widening income distribution raises the fertility differential, giving more influence to families that provide little education. The analysis finds that higher inequality reduces average education and thus growth, with the fertility‑differential effect explaining most of the empirical link between inequality and growth.

Abstract

We develop a new theoretical link between inequality and growth. In our model, fertility and education decisions are interdependent. Poor parents decide to have many children and invest little in education. A mean-preserving spread in the income distribution increases the fertility differential between the rich and the poor, which implies that more weight gets placed on families who provide little education. Consequently, an increase in inequality lowers average education and, therefore, growth. We find that this fertility-differential effect accounts for most of the empirical relationship between inequality and growth.