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Financial Development, Cycles and Income Inequality in a Model with Good and Bad Projects

Spiros Bougheas, Pasquale Commendatore, Laura Gardini () and Ingrid Kubin ()

No 545, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: We introduce a banking sector and heterogeneous agents in the Matsuyama et al. (2016) dynamic over-lapping generations neoclassical model with good and bad projects. The model captures the benefits and costs of an advanced banking system which can facilitate economic development when allocates resources to productive activities but can also hamper progress when invests in projects that do not contribute to capital formation. When the economy achieves higher stages of development it becomes prone to cycles. We show how the disparity of incomes across agents depends on changes in both the prices of the factors of production and the reallocation of agents across occupations.

Keywords: Banks; business cycles; Economic Development; Financial Innovation; Income Inequality (search for similar items in EconPapers)
JEL-codes: E32 E44 G21 (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-ban, nep-dge and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Financial Development, Cycles and Income Inequality in a Model with Good and Bad Projects (2022) Downloads
Working Paper: Financial development cycles and income inequality in a model with good and bad projects (2022) Downloads
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