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Three years prior to Perotti's study, it was demonstrated to have significant negative ramifications on economic development?, Context: In 1993, Galor and Zeira showed that inequality in the presence of credit market imperfections has a long lasting detrimental effect on human capital formation and economic development. A 1996 study by Perotti examined the channels through which inequality may affect economic growth. He showed that, in accordance with the credit market imperfection approach, inequality is associated with lower level of human capital formation (education, experience, and apprenticeship) and higher level of fertility, and thereby lower levels of growth. He found that inequality is associated with higher levels of redistributive taxation, which is associated with lower levels of growth from reductions in private savings and investment. Perotti concluded that, "more equal societies have lower fertility rates and higher rates of investment in education. Both are reflected in higher rates of growth. Also, very unequal societies tend to be politically and socially unstable, which is reflected in lower rates of investment and therefore growth."
inequality in the presence of credit market imperfections