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WORLD INTEREST RATES AND INEQUALITY: INSIGHT FROM THE GALOR–ZEIRA MODEL

Published online by Cambridge University Press:  15 November 2018

Michele Battisti ,
Tamara Fioroni  and
Andrea Mario Lavezzi
Michele Battisti
Affiliation:
University of Palermo
Tamara Fioroni*
Affiliation:
University of Verona
Andrea Mario Lavezzi
Affiliation:
University of Palermo
*
Address correspondence to: Tamara Fioroni, Department of Economics, University of Verona, Via Cantarane 24, 37129 Verona, Italy; e-mail: [email protected]. Phone: +39 0458489.
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Abstract

In this paper, we study the relationship between changes in the world interest rate and within-country inequality during the 1985–2005 period in which the world interest rate sharply declined. In line with the predictions of the seminal model of Galor and Zeira [Income distribution and macroeconomics. Review of Economic Studies 60, 35–52], the analysis suggests that the decrease in the world interest rate is associated with a decrease in inequality in poor countries and an increase in inequality in rich ones.

Keywords

InequalityEconomic GrowthMultiple Steady StatesWorld Interest Rates
Type
Articles
Information
Macroeconomic Dynamics , Volume 24 , Issue 5 , July 2020 , pp. 1042 - 1072
Copyright
© Cambridge University Press 2018

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Footnotes

Previous versions of this paper circulated with the title: “World Interest Rates, Inequality and Economic Growth: An Empirical Analysis of the Galor–Zeira Model.” We thank Costas Azariadis, Raouf Boucekkine, Davide Fiaschi, Omer Moav, Thanasis Stengos, Joseph Zeira, three anonymous referees, and an Associate Editor for helpful comments and suggestions. We also thank the seminar participants in Palermo, Rimini (RCEA Workshop on Macro and Growth), Bologna (SIE), Lima (DEGIT), Livorno (Structural Change, Dynamics and Economic Growth), and Dead Sea (IEA). Usual disclaimer applies. Financial support from MIUR (PRIN 2009, “Structural Change and Growth”), and University of Palermo (FFR 2012), is gratefully acknowledged.

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