By considering elementary education and higher education separately,this paper investigates the effect of education on income inequality within a country and macro economic development.Under the assumption of borrowing constraints,we define elementary education to be compulsory,higher education to be elective and with a fee.If the productivity of elementary education is low,even if the educational level of poor individuals is higher than a poverty trap,income inequality will widen because of an increase in the educational price.However,if the productivity of elementary education is high,income inequality will disappear.