Financial frictions, occupational choice and economic inequality

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dc.contributor.author Allub, Lian
dc.contributor.author Erosa, Andrés
dc.contributor.editor Universidad Carlos III de Madrid. Departamento de Economía
dc.date.accessioned 2014-07-24T12:45:40Z
dc.date.available 2014-07-24T12:45:40Z
dc.date.issued 2014-07
dc.identifier.issn 2340-5031
dc.identifier.uri http://hdl.handle.net/10016/19180
dc.description.abstract We develop a quantitative theory of entrepreneurship, income inequality, and financial frictions disciplined with household data from Brazil. The theory extends Lucas (1978) by modeling heterogeneity in two skills: -working and managerial skills. Consistently with the evidence, the theory implies three occupational categories: workers, employers, and self-employed entrepreneurs. We find that the removal of financial frictions decreases self-employment rates from 24% to 11% (with small effects on the number of employers), increases aggregate output by 48%, and has non- trivial effects on the distribution of income. We also find that while most households benefit from a reform that eliminates enforcement problems, the majority of employers (about two thirds) lose from the reform. By depressing the demand for labor, limited enforcement depresses the equilibrium wage rate, increasing the profits of employers. Our theory thus suggests that employers in Brazil may have a vested interested in maintaining a status quo with low enforcement.
dc.description.sponsorship Erosa acknowledges financial support from the European Commission through Marie Curie International Reintegration Grants PIRG03- GA-2008-231096
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries UC3M Working papers Economics
dc.relation.ispartofseries 14-13
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.title Financial frictions, occupational choice and economic inequality
dc.type workingPaper
dc.subject.eciencia Economía
dc.rights.accessRights openAccess
dc.type.version submitedVersion
dc.identifier.uxxi DT/0000001230
dc.identifier.repec we1413
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