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The Politics of Financial Development and Capital Accumulation

  • Tarishi Matsuoka

    ()

    (Graduate School of Economics, Kyoto University, Japan Society for Promotion of Science)

  • Katsuyuki Naito

    ()

    (Graduate School of Economics, Kyoto University)

  • Keigo Nishida

    ()

    (Graduate School of Economics, Kyoto University)

This paper proposes a model to examine conditions in which a government policy to improve imperfect credit markets is practiced through a democratic political process, and analyzes interactions between the politically implemented policy and economic development. The policy increases the welfare of middle-income individuals who can start new investments at the expense of poor and rich individuals. The preferences for the policy are thus non-monotonic over income levels. The realization of the policy strongly depends on the level of capital and the extent of income inequality. The low level of capital and high income inequality make the policy hard to implement, which is likely to cause the economy to fall into a poverty trap.

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File URL: http://www.kier.kyoto-u.ac.jp/DP/DP793.pdf
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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 793.

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Length: 28pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:kyo:wpaper:793
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