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Income Distribution, Sovereign Debt, And Public Investment

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  • Cem Karayalçin
  • Kathryn McCollister

Abstract

We develop a political economy model of sovereign debt that shows that income inequality leads to popular pressures on the government to use foreign debt to finance a redistribution of income at the expense of productive public investment. Recognizing this fact, international lenders impose credit ceilings with the consequence that developing country borrowers invest less and grow slower. Copyright Blackwell Publishing Ltd 2005.

Suggested Citation

  • Cem Karayalçin & Kathryn McCollister, 2005. "Income Distribution, Sovereign Debt, And Public Investment," Economics and Politics, Wiley Blackwell, vol. 17(3), pages 351-365, November.
  • Handle: RePEc:bla:ecopol:v:17:y:2005:i:3:p:351-365
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    References listed on IDEAS

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    1. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-1198, December.
    2. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    3. Dutt, Pushan & Mitra, Devashish, 2002. "Endogenous trade policy through majority voting: an empirical investigation," Journal of International Economics, Elsevier, vol. 58(1), pages 107-133, October.
    4. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
    5. Berg, Andrew & Sachs, Jeffrey, 1988. "The debt crisis structural explanations of country performance," Journal of Development Economics, Elsevier, vol. 29(3), pages 271-306, November.
    6. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    7. Wiesner, Eduardo, 1985. "Latin American Debt: Lessons and Pending Issues," American Economic Review, American Economic Association, vol. 75(2), pages 191-195, May.
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