We propose a coherent unified approach to the study of the linkages among economic growth, financial structure, and inequality, bringing together disparate theoretical and empirical literature. That is, we show how to conduct model-based quantitative research on transitional paths. With analytical and numerical methods, we calibrate and make tractable a prototype canonical model and take it to an application, namely, Thailand 1976–1996, an emerging market economy in a phase of economic expansion with uneven financial deepening and increasing inequality. We look at the expected path generated by the model and conduct robustness experiments. Because the actual path of the Thai economy is imagined here to be just one realization of many possible histories of the model economy, we construct a covariance-normalized squared error metric of closeness and find the best-fit simulation. We also construct a confidence region from a set of simulations and formally test the model. We broadly replicate the actual data and identify anomalies.

Claimants to Systemically Important Financial Institutions (SIFIs) would receive transfers when governments are forced into bailouts. Ex ante, this bailout expectation lowers SIFIs’ daily funding costs. The funding cost advantage reflects both the structural level of the government support and the time-varying market valuation for such a support. Based on a large worldwide sample of banks, we estimate the value of the structural subsidy, by exploiting expectations of state support embedded in credit ratings and by applying the long-run average value of the rating bonus. The value of the structural subsidy was already sizable, 60basis points (bp), as of the end-2007, before the crisis. It increased to 80bp by the end-2009.