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Financial Imperfections, Inequality and Capital Accumulation

  • Mahmoud Sami Nabi

    ()

    (LEGI – Tunisia Polytechnic School and University of Sousse - IHEC)

Aghion, P. and P. Bolton (1997, "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, 59, 151-172) provide a model analyzing the effect of capital accumulation on income inequality. We integrate two additional features to a modified version of this model. The first one is a costly financial contract enforcement which represents the second type of credit market imperfection in addition to moral hazard. The second one is enabling wealthy agents to undertake larger investment projects relatively to other agents. I show that inequality increases in a first stage of development and, contrarily to Aghion and Bolton (1997), remains constant or increases in a second stage (depending on the deposit interest rate ceiling).

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File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I3-P84.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 3 ()
Pages: 2388-2403

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Handle: RePEc:ebl:ecbull:eb-09-00276
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  1. Laeven, Luc & Majnoni, Giovanni, 2005. "Does judicial efficiency lower the cost of credit?," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1791-1812, July.
  2. Banerjee, Abhijit V. & Duflo, Esther, 2005. "Growth Theory through the Lens of Development Economics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 7, pages 473-552 Elsevier.
  3. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-98, December.
  4. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
  5. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  6. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
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