Intergeneration Human Capital Transmission and Poverty Traps

• Grant number: 23/01173-8
• Support Opportunities: Research Grants - Visiting Researcher Grant - International
• Start date: August 01, 2023
• End date: December 15, 2023
• Field of knowledge: Applied Social Sciences - Economics - Economics of Human Resources
• Principal Investigator: Fernanda Gonçalves de La Fuente Estevan
• Grantee: Fernanda Gonçalves de La Fuente Estevan
• Visiting researcher: Maria Del Carmen Camacho Perez
• Visiting researcher institution: Paris School of Economics, France
• Host Institution: Escola de Economia de São Paulo (EESP). Fundação Getúlio Vargas (FGV). São Paulo , SP, Brazil

Abstract

We investigate the role of parental health investment and children's schooling on the aggregate level of human capital and inequality using an overlapping generations model. In our model, parental longevity affects children's human capital since it impacts human capital transmission. When poor parents cannot afford to invest in health, we show that poverty traps may arise as human capital levels remain low in the long run. Importantly, the out-of-pocket cost of medical care and the quality of public schools play crucial roles in determining whether households fall into the poverty trap. We demonstrate that high-quality schools ensure that successive generations become more educated, eventually attaining a higher human capital steady state. However, improvements in public health investments are particularly effective, as they affect household income, schooling and allow for human capital transmission through generations. Our results have implications for the relative merits of public health and education investments and suggest that such policies are highly complementary. (AU)