Inequality and Institutional Quality in a Growth Model

Takuma Kunieda and Masashi Takahashi ()
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Masashi Takahashi: School of Economics, Kwansei Gakuin University

No 198, Discussion Paper Series from 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.

Keywords: Inequality; Institutional quality; Heterogeneous agents; Gini coefficient; Economic growth. (search for similar items in EconPapers)
JEL-codes: D23 D63 O11 O41 O43 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2019-10
New Economics Papers: this item is included in nep-gro
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http://192.218.163.163/RePEc/pdf/kgdp198.pdf First version, 2019 (application/pdf)

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Journal Article: Inequality and institutional quality in a growth model (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:198

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