Social Capital, Inequality, and Economic Growth

This paper analyzes a heterogeneous-agents OLG model incorporating both endogenous growth and social capital. An individual can either become an active part of the societys networks of trust and mutual cooperation, thus making a positive contribution to overall social capital, or stay socially disintegrated and freeride on the communitys social capital. In the modelled economy, aggregate output and economy-wide human capital and consumption all grow at the average rate of individual human-capital accumulation. An increase in inequality depresses the communitys social capital, which in turn lowers the economys growth rate.