This paper shows how the degree of credit-market imperfections affects the steady-state distributions of income and wealth, human capital investment, and the pattern of comparative advantage. The impact of trade liberalization on the accumulation of human capital depends on how it affects (1) the incentives to accumulate human capital, (2) the borrowing constraints facing human capital accumula...

This paper applies current theory concerning the impact of irreversibility of investment, in order to test for the impact of uncertainty on investment expenditure for a middle income country. The contribution of the paper is unique in two respects. First, it employs dynamic heterogeneous panel estimation techniques not previously applied to investment functions. Second, it explicitly tests for ...

This paper analyzes optimal linear taxes on capital and labor incomes in a life-cycle model of human capital investment, financial savings, and labor supply with heterogenous individuals. A dual income tax with positive marginal tax rates on not only labor but also capital income is optimal. The key function of the tax on capital income is to reduce labor tax distortions on human capital accumu...

The paper assumes a continuum of two period-lived agents; agents are identical except for inherited income. Young agents allocate their inheritance between consumption and investment in human capital under uncertainty. In the second period they receive a wage proportional to the accumulated human capital and invest in offspring. Two main results arise: a low earning per unit of human capital le...

We build a model where investments in human capital depend on the state of an individual’s social network. We show that correlation patterns between parents’ and children’s human capital investment and income depend on the structure of their social network. Heavier reliance on the social network increases the correlation of human capital investments and income across generations and decreases t...

Could globalization trigger an environmental "race to the bottom," in which competition for investment and jobs relentlessly degrades environmental standards? Since billions of people subsist on less than two dollars a day, it would be cavalier to dismiss this threat lightly. Indeed, the race-to-the-bottom (RTTB) model provokes widespread concern because its underlying assumptions have an air o...

We develop a political-economic model of sovereign debt that shows that income inequality leads to popular pressures on the government to use foreign debt to Þnance a redistribution of income at the expense of productive public investment. Recognizing this fact international lenders impose credit ceilings with the consequence that developing country borrowers invest less and grow slower. ∗We ar...