INCOME DISTRIBUTION, SOVEREIGN DEBT, AND PUBLIC INVESTMENT |
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Authors: | Cem Karayalç in, Kathryn McCollister |
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Affiliation: | Florida International University ; University of Miami |
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Abstract: | We develop a political economy model of sovereign debt that shows that income inequality leads to popular pressures on the government to use foreign debt to finance 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. |
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