Distributional dynamics in a neoclassical growth model: The role of elastic labor supply (original) (raw)

The Dynamics of Wealth Inequality in a Simple Ramsey Model: A Note on the Role of Production Flexibility

Macroeconomic Dynamics, 2009

It has been shown that the Ramsey growth model with agents that differ in their initial wealth endowments is compatible with a wide range of distributional outcomes, yet it is difficult to characterize under which circumstances the distribution of wealth becomes more or less unequal. In this note, we characterize the steady state distribution of wealth and compare it to the initial distribution, obtaining analytical conditions for one to be more skewed than the other. We show that whether wealth inequality increases or decreases during the transition to the steady state depends on simple and intuitive conditions on parameter values. Standard values for these parameters indicate that it is more likely that wealth inequality decreases as the economy accumulates capital.

Income and Wealth Distributions Along the Business Cycle: Implications from the Neoclassical Growth Model

Topics in Macroeconomics, 2000

This paper studies the business cycle dynamics of the income and wealth distributions in the context of the neoclassical growth model where agents are heterogeneous in initial wealth and non-acquired skills. Our economy admits a representative consumer which enables us to characterize the distributive dynamics by aggregate dynamics. We show that inequality in both wealth and income follows a counter-cyclical pattern: the former is counter-cyclical because of cyclical fluctuations in labor income, while the latter is counter-cyclical due to the wealth-distribution effect.

Growth and income inequality: a canonical model

Economic Theory, 2006

We develop an endogenous growth model with elastic labor supply, in which agents differ in their initial endowments of physical capital. In this framework, the growth rate and the distribution of income are jointly determined. The key equilibrating variable is the equilibrium labor supply. It determines the rate of return to capital, which in turn affects both the rate of capital accumulation and the distribution of income across agents. We then examine the impact of various structural shocks on growth and distribution. We find that faster growth is associated with a more unequal, contemporaneous distribution of income, consistent with recent empirical findings.

A Dynamic Model of Personal Wealth and Income Distribution in a Growing Closed Economy

Jahrbücher für Nationalökonomie und Statistik, 1983

A two-sector, two-class growth model is developed incorporating the following features: (a) the capital good is more capital intensive than the wage good, (b) the wage good is different from the consumption good of the capitalists, and (c) the saving/income ratio is a function of wealth holdings. In this model, we derive conditions under which a more egalitarian wealth distribution is associated with a more egalitarian income distribution. We Aemonstrate the difficulty of achieving a constant long-run wealth and income distribution by market forces alone. The savings behavior may be incompatible with such an objective and there may not exist any technological progress that would sustain a desirable wealth and income distribution. As a result, policy intervention in the form of direct wealth and income transfers may be necessary to attain a desirable wealth and income distribution •in the long ruff: A Dynamic Model of Personal Wealth and Income Distribution in a Growing Closed Economy

Dynamics of income distribution

Canadian Journal of Economics/Revue Canadienne d`Economique, 2000

In this paper, we have obtained closed-form solutions in Cass-Koopmans growth models with heterogeneous agents. The relationship between the form of production function and the dynamics of income distribution is made explicit. We then use this relationship to determine what production structure is simultaneously consistent with facts on growth and income inequality. Our empirical findings give support to models with decreasing returns in the reproducible factor.

Dynamics of wealth inequality

Comptes Rendus Physique, 2019

We study an agent-based model of evolution of wealth distribution in a macroeconomic system. The evolution is driven by multiplicative stochastic fluctuations governed by the law of proportionate growth and interactions between agents. We are mainly interested in interactions increasing wealth inequality that is in a local implementation of the accumulated advantage principle. Such interactions destabilise the system. They are confronted in the model with a global regulatory mechanism which reduces wealth inequality. There are different scenarios emerging as a net effect of these two competing mechanisms. When the effect of the global regulation (economic interventionism) is too weak the system is unstable and it never reaches equilibrium. When the effect is sufficiently strong the system evolves towards a limiting stationary distribution with a Pareto tail. In between there is a critical phase. In this phase the system may evolve towards a steady state with a multimodal wealth distribution. The corresponding cumulative density function has a characteristic stairway pattern which reflects the effect of economic stratification. The stairs represent wealth levels of economic classes separated by wealth gaps. As we show, the pattern is typical for macroeconomic systems with a limited economic freedom. One can find such a multimodal pattern in empirical data, for instance, in the highest percentile of wealth distribution for the population in urban areas of China.

Inequality and Aggregate Savings in the Neoclassical Growth Model

2011

Within the context of the neoclassical growth model I investigate the implications of (initial) endowment inequality when the rich have a higher marginal savings rate than the poor. More unequal societies grow faster in the transition process, and therefore exhibit a higher speed of convergence. Furthermore, there is divergence in consumption and lifetime wealth if the rich exhibit a higher intertemporal elasticity of substitution. Unlike the Solow-Stiglitz model, the steady state is always unique although the consumption function is concave.

The Effects Of Fiscal Policy On Income Inequality In A Model With Heterogeneous Agents

2018

The income inequality is one of the main obstacles to economic development. Understanding the dynamics of this social phenomenon is central to understand economic growth also. Thus based on models that relates fiscal policy, inequality and growth we proposed the following problem: Given the initial distribution of capital, what is the effect of a set of flat-rate taxation, on inequality? In order to answer this question we built a model following the tradition of studies in this area. The model we propose is a version of a competitive equilibrium of the basic neoclassical growth model, which incorporate inequality and heterogeneous agents: poor and rich, allow us to understanding this problem in a dynamic way. We use Ramsey problem to determine the optimal sequences for the three types of tax, capital, labor and consumption in a nonstochastic economy. The analytical solution found suggest that in steady state optimal tax on capital should always be zero regardless of the government’...

Income Distribution and Consumption Patterns in a’Classical’Growth Model

2003

Historians of the Industrial Revolution have not failed to study the role played by demand factors in the process of industrialization of an agricultural economy. Landes (1969, ch. II) emphasizes the relation between income distribution, consumption patterns and the growth of manufactures in the eighteenth century England. In his view, the middle classes flourished thanks to favourable income and wealth distribution.