Financial Frictions, Occupational Choice, and Economic Inequality
Andres Erosa and
No 702, 2012 Meeting Papers from Society for Economic Dynamics
We develop a quantitative life-cycle theory of occupational choice decisions, economic inequality, and financial frictions. The model is calibrated to life-cycle evidence on occupational choices and their persistence, earnings inequality, and consumption inequality in the Brazilian data. An important novelty of our theory is that individuals are heterogeneous in two ability types - ability as a worker and ability as an entrepreneur. Depending on their comparative advantage at occupations (ratio of abilities) and wealth, individuals may choose to become workers or entrepreneurs. The correlation of these two abilities is important for the quantitative implications of the theory because it determines the extent to which talented entrepreneurs are able to self-finance their businesses. When the correlation between skills is high, individuals that are talented as entrepreneurs are also talented as workers. Then, if skills are also persistent over time, young and talented individuals can work when young, build savings, and use their savings to finance their businesses when old. Thus, when entrepreneurial and working skills are highly correlated and persistent over time, the effects of financial frictions on resource allocations are less important than otherwise. Through counterfactual exercises, we want to study how alternative ways of generating economic inequality matter for the effects of financial frictions in the economy. We expect these results to deepen our understanding of the (non-trivial) interactions between inequality, financial frictions, and economic development.
New Economics Papers: this item is included in nep-dge and nep-ent
References: Add references at CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed
Downloads: (external link)
Journal Article: Financial frictions, occupational choice and economic inequality (2019)
Working Paper: Financial frictions, occupational choice and economic inequality (2014)
Working Paper: Financial Frictions, Occupational Choice and Economic Inequality (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:702
Access Statistics for this paper
More papers in 2012 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().