We have seen that intergenerational inequality will be greater
where inheritances are not heavily taxed and where educational
policies allow the wealthy to acquire more and better education for
their children.
Factors that contribute to and cause persistent inequality can be
represented in the model above, fig 1.0. The diagram shows a
cause an effect relationship technology, institutions and policies,
differences in endowment and economic inequality. Endowments
are the facts about an individual that may affect their income. This
could include level of education, inheritance, their ethnicity as well
as other factors. The income of an individual can depend on their
endowment, therefore differences in endowment cause be seen in
the diagram to lead to economic inequality. This is because an
individual who has more endowments or endowments that allow
them to capture more income would be able to get substantially
richer than those who do not leading to greater inequality. In the
diagram in can also be seen that technology and institutions and
policies affect both differences in endowment and economic
inequality. For example if inheritances are not heavily taxed then
this means an individual would have endowment with a higher
earning potential which would allow them to make more money
easier since they could use the inheritance to further educate
themselves or invest it as well as many other options, whereas
someone with no inheritance would not have the same
opportunities and there endowments could be less. This shows
how policies can lead to a greater difference in endowment which
leads to greater inequality. Moroever universities requires an
individual to have a certain amount of money to be able to attend,
this would exclude others leading to difference in endowment and
more inequality. Technology also affects this, as technology
advances there is more demand for a certain skill such as
programming and less demand for other skills which people may
already have such as manual labour in order to work. This would
lead to difference in endowments and greater inequality since
these skills require time and effort to gain and may even be
inaccessible for certain people. Moreover, people with access to
technology have a better chance of attaining skills that are in
demand therefore leading to inequality that persists over time. In
the model it can also be seen that economic inequality affects
institutions, difference in endowments, the model shows how
current inequality leads to inequality in the next time period and
causes inequality to persist over time. Parents with more money
can get their kids better education and therefore increasing the
difference in endowments leading to persistent inequality.