Information technology revolution: : the distributional effects

Abstract

The purpose of this work is to analyze the distributional effects of a new technology to acquire human capital by using computers; i.e an information technology revolution. We consider an overlapping generation model where the heterogeneity accross individuals is given by the bequest they receive and human capital is acquired through the use of computers. Our benchmark economy presents credit market frictions and a non-convexity in the technology to accumulate human capital which generate both inefficiencies and income distribution inequalities in equilibrium. Consequently, government intervention might be desirable. We present two different policies that guarantee the whole society a minimum level of computers. These policies differ in the duration of the intervention and the government financial policy (i.e taxes and debt). The possibility to implement these policies will depend on the initial wealth distribution and the interest rate faced by the government. We demonstrate that in our economy these interventions not only reduce inequalities but also increase total output.