Capital market imperfections, income inequality and economic growth: A model approach

摘要

This paper develops a model of growth and income inequalities in the presence of imperfect capital markets. It is shown that in the presence of credit market imperfections and indivisibilities in investment in human capital with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities. The models suggest income inequality can lead to a lower economic growth and through enhancing the investment opportunity effect that fosters growth. So the policy-makers can design a policy that can improve economic efficiency by redistributing the wealth.