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Minimum consumption and transitional dynamics in wealth distribution

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  • Alvarez-Pelaez, Maria J.
  • Diaz, Antonia

Abstract

This paper investigates the evolution of wealth distribution in a one sector growth model along its transition path. A key feature of the model is that a household´s consumption cannot fall below a positive level each period. This requirement introduces a positive association between the intertemporal elasticity of substitution and household wealth. Households only differ in their initial holdings of capital. The model is calibrated to match some key statistics of the US economy. The level of inequality in the wealth distribution of our artificial economy has a n inverted Ushape. The level of wealth inequality and its evolution resembles that of the US economy. However, our model illustrates that the existence of a Kuznets curve is very sensitive tothe sources of growth: whether it is driven by productivity growth or capital accumulation. Additionally, our model predicts an upsurge in wealth inequality following the productivity slowdown in the 1970´s.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 52 (2005)
Issue (Month): 3 (April)
Pages: 633-667

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Handle: RePEc:eee:moneco:v:52:y:2005:i:3:p:633-667

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Web page: http://www.elsevier.com/locate/inca/505566

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References

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Citations

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Cited by:
  1. Robert M. Townsend & Kenichi Ueda, 2003. "Financial Deepening, Inequality, and Growth," IMF Working Papers 03/193, International Monetary Fund.
  2. Cecilia García-Peñalosa & Stephen J. Turnovsky, 2012. "Income Inequality, Mobility, and the Accumulation of Capital: The Role of Heterogeneous Labor Productivity," Working Papers halshs-00793209, HAL.
  3. Barnett, Richard C. & Bhattacharya, Joydeep, 2006. "Rejuveniles and Growth," Staff General Research Papers 12653, Iowa State University, Department of Economics.
  4. Marcel Aloy & Gilles De Truchis, 2012. "Estimation and Testing for Fractional Cointegration," Working Papers halshs-00793206, HAL.
  5. Gomes, Orlando, 2007. "Stability analysis in a monetary model with a varying intertemporal elasticity of substitution," MPRA Paper 2890, University Library of Munich, Germany.
  6. Turnovsky, Stephen J. & Garci­a-Peñalosa, Cecilia, 2008. "Distributional dynamics in a neoclassical growth model: The role of elastic labor supply," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1399-1431, May.
  7. Francesc Obiols-Homs & Carlos Urrutia, 2002. "Evolution of the Distribution of Assets in the Neoclassical Growth Model," Working Papers 0212, Centro de Investigacion Economica, ITAM.
  8. Richard C. Barnett & Marco A. Espinosa-Vega, 2011. "Barriers to Capital Accumulation and the Incidence of Child Labor," DEGIT Conference Papers c016_014, DEGIT, Dynamics, Economic Growth, and International Trade.
  9. Ales Bulir & Alma Romero-Barrutieta & Jose Daniel Rodríguez-Delgado, 2011. "The Dynamic Implications of Debt Relief for Low-Income Countries," IMF Working Papers 11/157, International Monetary Fund.
  10. Chen, Chien-Liang & Kuan, Chung-Ming & Lin, Chu-Chia, 2007. "Saving and housing of Taiwanese households: New evidence from quantile regression analyses," Journal of Housing Economics, Elsevier, vol. 16(2), pages 102-126, June.
  11. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "The Relative Income Hypothesis," CIRANO Working Papers 2008s-18, CIRANO.
  12. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "A Permanent Income Version of the Relative Income Hypothesis," CESifo Working Paper Series 2361, CESifo Group Munich.
  13. San Vicente Portes, Luis, 2009. "On the distributional effects of trade policy: Dynamics of household saving and asset prices," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 944-970, August.
  14. Tamotsu Nakamura, 2014. "On Ramsey's conjecture with AK technology," Economics Bulletin, AccessEcon, vol. 34(2), pages 875-884.
  15. Jang-Ting Guo & Anca-Ioana Sirbu & Mark Weder, 2012. "News about Aggregate Demand and the Business Cycle," Working Papers 12-02, Department of Economics, West Virginia University.

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