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Roads to Equality: Wealth Distribution Dynamics with Public-Private Capital Complementarity

Author

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  • Francisco H.G. Ferreira

Abstract

This paper proposes a model of wealth distribution dynamics with a capital market imperfection and a production function where public capital is complementary to private capital. A unique invariant steady-state distribution is derived, with three social classes: subsistence workers, 'government dependent' middle-class entrepreneurs and 'private infrastructure owning' upper-class entrepreneurs. It is shown that there is a minimum level of public investment below which the middle class disappears, and that increases in non-targeted public investment over some range lead to unambiguously less inequality of opportunity, as well as to greater output. This provides an additional rationale for an active role for the government in infrastructure, health and education provision, and has implications for foreign aid.

Suggested Citation

  • Francisco H.G. Ferreira, 1995. "Roads to Equality: Wealth Distribution Dynamics with Public-Private Capital Complementarity," STICERD - Theoretical Economics Paper Series 286, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    • Handle: RePEc:cep:stitep:286
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    Cited by:

    1. Ignacio Campomanes, 2022. "Inequality and Growth: How Social Mobility Reshapes The Main Theoretical Channels," Working Papers 599, ECINEQ, Society for the Study of Economic Inequality.
    2. Ritika Jain & Shreya Biswas, 2021. "The road to safety- Examining the nexus between road infrastructure and crime in rural India," Papers 2112.07314, arXiv.org.
    3. Kose,Ayhan & Ohnsorge,Franziska Lieselotte & Ye,Lei Sandy & Islamaj,Ergys, 2017. "Weakness in investment growth : causes, implications and policy responses," Policy Research Working Paper Series 7990, The World Bank.
    4. Gibson John & Rioja Felix, 2020. "The welfare effects of infrastructure investment in a heterogeneous agents economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-17, January.
    5. Rafael Gomez & David K. Foot, 2003. "Age Structure, Income Distribution and Economic Growth," Canadian Public Policy, University of Toronto Press, vol. 29(s1), pages 141-162, January.
    6. César Calderón & Luis Servén, 2004. "The Effects of Infrastructure Development on Growth and Income Distribution," Working Papers Central Bank of Chile 270, Central Bank of Chile.
    7. repec:ilo:ilowps:488271 is not listed on IDEAS
    8. Calderon, Cesar & Serven, Luis, 2014. "Infrastructure, growth, and inequality : an overview," Policy Research Working Paper Series 7034, The World Bank.
    9. Leck, Eran & Bekhor, Shlomo & Gat, Daniel, 2008. "Welfare economic impacts of transportation improvements in a peripheral region," European Transport \ Trasporti Europei, ISTIEE, Institute for the Study of Transport within the European Economic Integration, issue 40, pages 88-105.
    10. Bajar, Sumedha. & Rajeev, Meenakshi., 2015. "The impact of infrastructure provisioning on inequality : evidence from India," ILO Working Papers 994882713402676, International Labour Organization.
    11. Escobal, Javier, 2005. "The Role of Public Infraestructure in Market Development in Rural Peru," MPRA Paper 727, University Library of Munich, Germany.
    12. Francisco H. G. Ferreira, 1999. "Economic transition and the distributions of income and wealth," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(2), pages 377-410, July.
    13. Campante, Filipe R. & Ferreira, Francisco H.G., 2007. "Inefficient lobbying, populism and oligarchy," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 993-1021, June.
    14. Chiara DEL BO, 2009. "Recent advances in public investment, fiscal policy and growth," Departmental Working Papers 2009-25, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    15. repec:cuf:journl:y:2014:v:15:i:2:calderon:serven is not listed on IDEAS
    16. D’Onofrio, Alexandra & Minetti, Raoul & Murro, Pierluigi, 2019. "Banking development, socioeconomic structure and income inequality," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 428-451.
    17. Getachew, Yoseph, 2008. "Public Capital, Income Distribution and Growth," MERIT Working Papers 2008-056, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    18. Osvaldo Nina, 2021. "Efecto del COVID-19 en el sistema de intermediación financiera: El caso boliviano," Development Research Working Paper Series 04/2021, Institute for Advanced Development Studies.
    19. Souza-Sobrinho, Nelson, 2001. "Desigualdade e Pobreza: Fatos Estilizados e Simulações [Inequality and Poverty: Stylized Facts and Simulations]," MPRA Paper 15570, University Library of Munich, Germany.
    20. Ferreira, Francisco & Prennushi, Giovanna & Ravallion, Martin, 1999. "Protecting the poor from macroeconomic shocks," Policy Research Working Paper Series 2160, The World Bank.
    21. Siburian, Matondang Elsa, 2021. "Fiscal Decentralization, Regional Income Inequality, and the Provision of Local Public Goods: Evidence from Indonesia," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 46(4), pages 87-103, December.
    22. Li, Y. & Murshed, S.M. & Papyrakis, E., 2021. "Public capital and income inequality: some empirical evidence," ISS Working Papers - General Series 677, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    23. World Bank Group, 2017. "Global Economic Prospects, January 2017," World Bank Publications - Books, The World Bank Group, number 25823, December.
    24. Gerasimos T. Soldatos, 2019. "Public-private investment substitutability-complementarity, taxation, and bank competition," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2019(3), pages 41-61.
    25. Matondang Elsa Siburian, 2020. "Fiscal Decentralization, Regional Income Inequality, and the Provision of Local Public Goods: Evidence from Indonesia," Working Papers 2001, Waseda University, Faculty of Political Science and Economics.

    More about this item

    Keywords

    Wealth distribution; capital market imperfections; inequality; public investment.;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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