The empirical literature on the relationship between inequality and growth offers a contradictory assessment: Estimators based on time-series variation indicate a positive link while estimators (also) exploiting the cross-sectional variation suggest a negative relationship. The present paper (i)...

Relying on a simple endogenous growth model, this paper highlights a political instability effect as a potential explanation for why foreign aid is frequently ineffective with respect to economic performance. In the present framework, the role of the state is to fund institutions allowing for...

When it comes to economic reforms in developing countries, many economists agree on broad objectives (such as fostering outward orientation). Broad objectives, however, can be pursued in many different ways, and policy experimentation is often indispensable for learning which alternative works...

A large informal sector and widespread poverty are often regarded as two closely intertwined problems. This paper explores how informality and poverty respond to different options for regulatory and policy reform. To do so, we propose a structural model and calibrate it to survey data from...

Inequality affects economic performance through many mechanisms, both beneficial and harmful. Moreover, some of these mechanisms tend to set in fast while others are rather slow. The present paper (i) introduces a simple theoretical model to study how changes in inequality affect economic growth...

Recent macroeconomic research discusses credit market imperfections as a key channel through which inequality retards growth: With convex technologies, progressive transfers increase aggregate output because marginal returns become more equalized across investment opportunities. We argue that...