Cultural Attributes, Income Inequality, and Ethnic Differentials

Abstract We incorporate into a standard growth model endogenously determined cultural attributes that complement capital endowments. The resulting propagation mechanism implies that the economy exhibits multiple steady states, convergence to which depends, in particular, on the initial income distribution, featuring persistent income inequality and the lack of income convergence within the economy. An application of the baseline model indicates that the initially disadvantaged ethnic group is overrepresented in the low steady state, and its high steady state income level is lower than that of the initially advantaged group. Initial income redistribution and social integration affect the economy's steady state configuration. These results are interpreted in the light of existing evidence pertaining to such differentials in the US.