This paper presents theory and evidence on the determinants of the size of the informal sector. We propose a simple theoretical model in which it is positively related to income inequality, more so under weak institutions, and is negatively related to the economy's wealth. These predictions are...

This Paper presents theory and evidence on the relationship between inequality and institutional quality. We exhibit a model in which the two dynamically reinforce each other and set to test this relationship with a broad array of institutional measures. We establish the double causality between...

Transition economies have an initial condition of high human capital relative to living standards. I explore the possible implications of this key fact by surveying and adapting literature on growth and inequality. I focus especially on the long run and policy options.

We study a model of endogenous growth where firms invest both in product and process innovations. Product innovations (that open up completely new product lines) satisfy the advanced wants of the rich. Subsequent process innovations (that decrease costs per unit of quality) transform the...

This paper revisits demographic dividend issues after almost two decades of debate. In 1998, David Bloom and Jeffrey Williamson used a convergence model to estimate the impact of demographic-transition-driven age structure effects and calculated what the literature has come to call the...

We explore the relationship between import protection and the household distribution of income. We first develop a general-equilibrium mapping from tariffs to household inequality measures. This also yields predictions for linkages between tariffs, development level, and observed household...

We utilize Schmookler’s (1966) concept of demand-induced invention to study the role of income inequality in an endogenous growth model. As rich consumers can satisfy more wants than poor consumers, both prices and market sizes for new products, as well as their evolution over time, are...

We examine whether structural transformation leads to a Kuznets curve. We present a dynamic general equilibrium model with heterogeneous workers, occupational self-selection and selective migration, and calibrate the model to survey data for Malawi. We show that structural transformation raises...

Because of their more limited inequality and more comprehensive social welfare systems, many perceive average welfare to be higher in Scandinavian societies than in the United States. Why then does the United States not adopt Scandinavian-style institutions? More generally, in an interdependent...