The distributional consequences of foreign transfers: do they reduce or exacerbate inequality?
This paper employs a dynamic two-sector dependent-economy model to study the impact of foreign transfers on a country's aggregate economic performance, as well as its distributions of wealth, income, and welfare. The transfers may be allocated to debt reduction, or to the productivity enhancement of the traded or nontraded sector. The effect of the transfer on aggregate economic performance depends crucially upon: (i) the relative capital intensities of the two productive sectors, and (ii) the allocation of the transfers across the sectors. The consequences for wealth and income inequality depend not only upon these factors, but also upon (iii) the economy's access to the world financial market. Most of the analysis is conducted using simulations, where we characterize the dynamic evolution of both the aggregate economy and the inequality measures. Whether growth and inequality are positively or negatively associated over time depends upon the three factors noted above. Copyright 2012 Oxford University Press 2011 All rights reserved, Oxford University Press.
Year of publication: |
2012
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Authors: | Bouza, Serpil ; Turnovsky, Stephen J. |
Published in: |
Oxford Economic Papers. - Oxford University Press. - Vol. 64.2012, 4, p. 702-735
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Publisher: |
Oxford University Press |
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