ABSTRACT
This article examines the effects of income distribution on capital accumulation and growth. It focuses on various channels through which personal and functional income distributions influence savings, investment, and growth. The chapter examines how inequality in income distribution can slow accumulation and growth, concentrating on various channels of influence. The fact that a number of developing countries with egalitarian land distribution have experienced slow growth suggests that the link between asset distribution and growth depends on a host of other factors, including incentives for individuals to invest in skill acquisition and the provision of public education. The provision of government finance for education is required because the value to society of investment in skill acquisition exceeds its value to the individual; it creates positive externalities that are not captured by the individual concerned. The relationship between inequality and accumulation is greatly influenced by the extent to which profits are saved and invested.
