Education and income inequality: The role of a social protection system

In this paper we aim to understand the role a welfare state can play in sti mulating risky but profitable activities like investment in education, and in reducing income inequality. We analyze how unemployment benefits may aff ect investment in education when the latter is characterized by uncertain r eturns. This is done in an overlapping generations model in which endogenou s growth is introduced through human capital accumulation. We develop a num erical example of the model in order to reproduce some key differences betw een the European versus the North American economy; differences that, accor ding to this model, result from the different degree of social protection c haracterizing both economies.