Publication:
Financial frictions, occupational choice and economic inequality

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2019-11-01
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Elsevier
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Abstract
The Lucas (1978) model is extended to incorporate heterogeneity in working ability and a time allocation decision by entrepreneurs (work versus manage). Financial frictions dis- tort not only the average skill of entrepreneurs but also the average skill of workers. The model economy accounts for half of the association between entrepreneurship and exter- nal finance to GDP in the data, whereas a standard span of control model explains only about one tenth. The variation in entrepreneurship is mostly due to the variation in self- employed entrepreneurs rather than in employers. Moreover, financial frictions have larger effects on output per worker, TFP, and inequality
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Financial frictions, Entrepreneurs, Employers, Self-employed, TFP, Inequality
Bibliographic citation
Allub, L., & Erosa, A. (2019). Financial frictions, occupational choice and economic inequality.Journal of Monetary Economics, 107, pp. 63-76.