WORLD INTEREST RATES AND INEQUALITY: INSIGHT FROM THE GALOR–ZEIRA MODEL

Michele Battisti, Tamara Fioroni and Andrea Lavezzi

Macroeconomic Dynamics, 2020, vol. 24, issue 5, 1042-1072

Abstract: In this paper, we study the relationship between changes in the world interest rate and within-country inequality during the 1985–2005 period in which the world interest rate sharply declined. In line with the predictions of the seminal model of Galor and Zeira [Income distribution and macroeconomics. Review of Economic Studies 60, 35–52], the analysis suggests that the decrease in the world interest rate is associated with a decrease in inequality in poor countries and an increase in inequality in rich ones.

Date: 2020
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