THEORIES OF PERSISTENT INEQUALITIES - HUMAN-CAPITAL, INEQUALITY, AND GROWTH - A LOCAL PERSPECTIVE

A recent body of work has demonstrated the crucial role played by loca l human capital externalities and local school funding in generating s ocio-economic segregation, persistent poverty, and low aggregate incom e or productivity growth. We present a simple model which captures the main insights from this literature, and prove three general propositi ons. First, minor differences in education technologies, preferences, wealth, or minor imperfections in capital markets, can lead to a high degree of stratification. Second, stratification makes inequality in e ducation and income more persistent across generations; the same is tr ue for total wealth, provided the rich succeed in capturing the rents created by their secession. Finally, this polarization or urban areas can be very inefficient, especially in the long run.