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The distributional consequences of rent seeking

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E-pub ahead of print
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<mark>Journal publication date</mark>14/07/2021
<mark>Journal</mark>Economic Inquiry
Publication StatusE-pub ahead of print
Early online date14/07/21
<mark>Original language</mark>English

Abstract

We analyse the distributional effects of rent seeking via the financial sector in a model calibrated to US data. Rent seeking implies a misallocation of resources that increases wealth inequality among non rent seekers and for the whole economy. A deterioration in institutional quality implying more rent seeking leads to welfare losses for non rent seekers, especially for those with higher earnings and initial wealth, because they are most affected by the deterioration of the aggregate economy. On the other hand, welfare gains are larger for rent seekers with higher earnings and wealth, who have an increased resource extraction capacity.