(65) The Effect of Education on Income Inequality

Using a cross-national data, this paper uses gini coefficients to measure the level of each country’s income inequality from the years 1980 to 2010 in five year intervals. Understanding that human capital is crucial in the... [ view full abstract ]

Using a cross-national data, this paper uses gini coefficients to measure the level of each country’s income inequality from the years 1980 to 2010 in five year intervals. Understanding that human capital is crucial in the growth of a country, this paper will observe the impact of education on income inequality. Public education observed because unlike private education it decreases inequality overall, while private education increases it. Education is split into three levels: primary, secondary, and tertiary. The percentage of completion rates are gathered from Barro and Lee (2012). To account for the differences between each country, a fixed-effects regression is run. The regression’ independent variables include each country’s population, GDP per capita, expenditures on education, past public expenditures, level of democracy, and whether the country is a developed or a developing country. A dummy variable is used to indicate whether each country is developed or developing. To generate results, two regressions were run. The first regression showed a negative relationship between the gini coefficient and the percent of completed schooling shows that increased education at all levels of schooling decreases the level of income inequality in the country. The second regression generated different results concluding that completion of secondary education reduces income inequality, while completion of primary and tertiary does not.