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Mahmoud Sami Nabi
''Financial Imperfections, Inequality and Capital Accumulation''
( 2009, Vol. 29 No.3 )
Aghion, P. and P. Bolton (1997, "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, 59, 151-172) provide a model analyzing the effect of capital accumulation on income inequality. We integrate two additional features to a modified version of this model. The first one is a costly financial contract enforcement which represents the second type of credit market imperfection in addition to moral hazard. The second one is enabling wealthy agents to undertake larger investment projects relatively to other agents. I show that inequality increases in a first stage of development and, contrarily to Aghion and Bolton (1997), remains constant or increases in a second stage (depending on the deposit interest rate ceiling).
Keywords: Financial imperfections, inequality, capital accumulation.
JEL: D6 - Welfare Economics: General
O1 - Economic Development: General
Manuscript Received : May 12 2009 Manuscript Accepted : Sep 18 2009

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