The Costs of Education, Longevity and the Poverty of Nations. ∗ Pedro Cavalcanti Ferreira  Samuel de Abreu Pessa A bst r act This paper explores the distortions on the cost of education, associated with govern- ment policies and institutional factors, as an additional determinant of cross-country income differences. Agents are nitely lived and the model takes into account life-cycle features of human capital accumulation. There are two sectors, one producing goods and the other providing educational services. The model is calibrated and simulated for 89 economies. We nd that human capital taxation has a relevant impact on incomes, which is amplied by its indirect effect on returns to physical capital. Life expectancy plays an important role in determining long-run output: the expansion of the popula- tion working life increases the present value of the ow of wages, which induces further human capital investment and raises incomes. Although in our simulations the largest gains are observed when productivity is equated across countries, changes in longevity and in the incentives to educational investment are too relevant to ignore. K ey Words: Distortions, Human Capital, Longevity, Income Diversity JEL Classi fi cation: J24, O11,O17, O47, O57 ∗ We gratefully acknowledge the comments and suggestions of Joªo Issler, Marcos B. Lisboa, and several seminar participants around the world. All remaining errors are ours. The authors also acknowledge the nancial support of CNPq-Brazil and PRONEX  Both authors are from the Graduate School of Economics ( EPGE ), Fundaªo Getulio Vargas, Praia de Botafogo 190, 1125, Rio de Janeiro, RJ, 22253-900, Brazil. Email addresses of the authors are, respectively, ferreira@fgv.br, pessoa@fgv.br 1