Why progressive redistribution can hurt the poor
AbstractRecent macroeconomic research discusses credit market imperfections as a key channel through which inequality retards growth: With convex technologies, progressive transfers increase aggregate output because marginal returns become more equalized across investment opportunities. We argue that this reasoning may not hold in general equilibrium. Since the investment functions are concave in wealth, reducing inequality increases capital demand and the interest rate. Hence, through the impact on capital costs, shifting wealth from the rich to the middle class depletes the poorest investors' access to credit. But because the poor face the highest marginal returns, the net effect on output may be negative. We find, however, that redistributing towards the bottom-end of the distribution has a clear positive impact. Finally, we discuss the implications of our theoretical findings for future empirical research.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 92 (2008)
Issue (Month): 3-4 (April)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505578
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Banerjee, Abhijit V & Newman, Andrew F, 1993.
"Occupational Choice and the Process of Development,"
Journal of Political Economy,
University of Chicago Press, vol. 101(2), pages 274-98, April.
- Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Banerjee, Abhijit V & Duflo, Esther, 2003.
" Inequality and Growth: What Can the Data Say?,"
Journal of Economic Growth,
Springer, vol. 8(3), pages 267-99, September.
- Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
- Thomas Piketty, 1992. "Imperfect Capital Markets and Persistence of Initial Wealth Inequalities," STICERD - Theoretical Economics Paper Series /1992/255, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Matsuyama, Kiminori, 2000.
Review of Economic Studies,
Wiley Blackwell, vol. 67(4), pages 743-59, October.
- Genicot, Garance & Ray, Debraj, 2006. "Bargaining power and enforcement in credit markets," Journal of Development Economics, Elsevier, vol. 79(2), pages 398-412, April.
- Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 173-89, April.
- Galor, Oded & Zeira, Joseph, 1993.
"Income Distribution and Macroeconomics,"
Review of Economic Studies,
Wiley Blackwell, vol. 60(1), pages 35-52, January.
- Legros, Patrick & Newman, Andrew F., 1996.
"Wealth Effects, Distribution, and the Theory of Organization,"
Journal of Economic Theory,
Elsevier, vol. 70(2), pages 312-341, August.
- Patrick Legros & Andrew Newman, 1996. "Wealth effects, distribution, and the theory of organization," ULB Institutional Repository 2013/7036, ULB -- Universite Libre de Bruxelles.
- Banerjee, Abhijit & Newman, Andrew F, 1998. "Information, the Dual Economy, and Development," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 631-53, October.
- repec:cep:stitep:255 is not listed on IDEAS
- Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
- Manuel Oechslin & Reto Foellmi, 2006.
"Market Imperfections, Wealth Inequality, and the Distribution of Trade Gains,"
IEW - Working Papers
266, Institute for Empirical Research in Economics - University of Zurich.
- Foellmi, Reto & Oechslin, Manuel, 2010. "Market imperfections, wealth inequality, and the distribution of trade gains," Journal of International Economics, Elsevier, vol. 81(1), pages 15-25, May.
- Foellmi, Reto & Oechslin, Manuel, 2009. "Market Imperfections, Wealth Inequality, and the Distribution of Trade Gains," CEPR Discussion Papers 7520, C.E.P.R. Discussion Papers.
- Reto Foellmi & Manuel Oechslin, 2010. "Market Imperfections, Wealth Inequality, and the Distribution of Trade Gains," Diskussionsschriften dp1006, Universitaet Bern, Departement Volkswirtschaft.
- Halter, David & Oechslin, Manuel, 2010.
"Inequality and Growth: The Neglected Time Dimension,"
CEPR Discussion Papers
8033, C.E.P.R. Discussion Papers.
- Daniel Halter & Manuel Oechslin & Josef Zweimüller, 2010. "Inequality and growth: the neglected time dimension," IEW - Working Papers 507, Institute for Empirical Research in Economics - University of Zurich, revised Nov 2011.
- Loayza, Norman & Rigolini, Jamele & Llorente, Gonzalo, 2012.
"Do middle classes bring institutional reforms ?,"
Policy Research Working Paper Series
6015, The World Bank.
- Loayza, Norman & Rigolini, Jamele & Llorente, Gonzalo, 2012. "Do middle classes bring about institutional reforms?," Economics Letters, Elsevier, vol. 116(3), pages 440-444.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.