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Inequality and Institutional Quality in a Growth Model

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  • Takuma Kunieda

    (School of Economics, Kwansei Gakuin University)

  • Masashi Takahashi

    (School of Economics, Kwansei Gakuin University)

Abstract

A macroeconomic growth model of an occupational choice between being a diligent worker and being a criminal is developed. Imperfect protection of property rights renders agents heterogeneous in their holding wealth over time even though they are homogeneous in the initial period. The model is so tractable that one can explicitly derive the distribution of individual wealth and compute the Gini coefficient analytically in the stationary state. Using the Gini coefficient, we investigate how institutional quality affects inequality across agents in the economy. Our ndings are as follows. In the case of a relatively higher capital share, as institutional quality improves, inequality widens in the early stage of development of institutional quality; in contrast, inequality shrinks once institutions have sufficiently matured. In the case of a lower capital share, inequality monotonically shrinks as institutional quality improves. Furthermore, we present government policies that reduce inequality and achieve the first-best outcome.

Suggested Citation

  • Takuma Kunieda & Masashi Takahashi, 2019. "Inequality and Institutional Quality in a Growth Model," Discussion Paper Series 198, School of Economics, Kwansei Gakuin University.
  • Handle: RePEc:kgu:wpaper:198
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    References listed on IDEAS

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    1. Hiroaki Sasaki, 2022. "Special feature: economic dynamics—growth, capital, labor, technology, and money," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 159-167, April.

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    More about this item

    Keywords

    Inequality; Institutional quality; Heterogeneous agents; Gini coefficient; Economic growth.;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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