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The Politics of Financial Development and Capital Accumulation

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Tarishi Matsuoka & Katsuyuki Naito & Keigo Nishida, 2011. "The Politics of Financial Development and Capital Accumulation," KIER Working Papers 793, Kyoto University, Institute of Economic Research.
  • Handle: RePEc:kyo:wpaper:793
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    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP793.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Keywords: financial development; economic development; income inequality; majority voting;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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