Mortality, Fertility, and Persistent Income Inequality

Many developing countries are plagued by persistent inequality in income distribution. While a growing body of economic-demographic literature emphasizes differential fertility channel, this paper investigates differential childmortality—differences in childmortality across income groups— as a critical link through which income inequality persists. Using an overlapping generations model in which both child mortality and fertility are endogenously determined by parental choice, this paper demonstrates that differential child mortality and its interaction with differential fertility may generate an ‘‘income inequality trap.’’ The trap is characterized by higher child mortality and lower degree of skill formation among the poorer households. The model can also explain the behavior of aggregate fertility andmortality rates for countries at various stages of development, consonant with patterns of demographic transition. The results indicate that provision of public health that raises the productivity of private health spending may be an effective way to reduce income inequality.