Inequality, institutions and growth

Abstract

the paper explores the relationship betweent the distribution of wealth and income, the institutional environment and the growth rate of an economy. A formal model is developed in which the members of society determine, through a political process, the extent of property rightsprotection provided by its institutions. We show that the level of protection is a fuction of the decisive agent´s property share, and that for both a political process requiring a ´strict consensus´and for one consisting in ´majority voting´, improvements in the distribution of property result in more secureproperty rights. The model also predicts that, since increased property rights protection reduces the adverse effects of socio-political instability on savings and investment, improvement in the distribution of wealth and income also lead to higher growth rates.