Profit Sharing, Income Inequality and Capital Accumulation

Mahmoud Nabi

No 781, Working Papers from Economic Research Forum

Abstract: The relationship between economic development and income inequality isn’t neutral vis-à-vis the role of the financial system in responding to the needs of different categories of agents. Indeed, as shown by the literature on the persistent inequality (e.g. Banarjee and Newman, 1993; Piketty, 1997), taking account of the asymmetric impact of the financial imperfections on wealthy and poor agents changes the pace of the Kuznets (1955) relationship between economic development and income inequality. In this paper we try to analyze the effect of introducing profit-sharing financial contracts between banks and entrepreneurs on the evolution of the capital accumulation/income inequality relationship. It is interestingly shown that income inequality disappears when the economy reaches a second stage of development.

Pages: 29
Date: 2013-10, Revised 2013-10
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Working Paper: Profit Sharing, Income Inequality and Capital Accumulation (2012)
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