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Introduction
There is now a large and growing literature, both theoretical and empirical, examining the relationship between income inequality and economic growth. In much of the theoretical literature, this relationship is usually thought to be negative. Galor and Zeira (1993), also Aghion and Bolton (1997), argue that capital market imperfections limit the ability of low-income individuals to invest in human capital, leaving productivity gains unexploited. The political economy models of Alesina and Rodrik (1994) and Persson and Tabellini (1994) stress the efficiency losses from re-distributional schemes and government intervention as median voters use the political system to flatten the income distribution. Alesina and Perotti (1996) emphasize the potential for social unrest and political upheaval from increased inequality and the...
