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Income Distribution and the Demand Constraint

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Author Info
 Mani, Anandi
Abstract

This paper argues that the interaction between inequality and the demand patterns for goods is a potential source of persistent inequality. Income distribution, in the presence of non-homothetic preferences, affects the demand for goods and, due to differences in factor intensities across sectors, it alters the return to factors of production and the initial distribution of income. Low inequality leads to high demand for medium skilled intensive goods, providing a bridge over which low skill dynasties may transition to the high-skilled sector in the long run. Under high inequality however, the initial lack of demand for medium skilled labor breaches this bridge from poverty to prosperity and inequality persists. Copyright 2001 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 6 (2001)
Issue (Month): 2 (June)
Pages: 107-33
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Handle: RePEc:kap:jecgro:v:6:y:2001:i:2:p:107-33

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  1. Devashish Mitra & Vitor Trindade, 2003. "Inequality and Trade," NBER Working Papers 10087, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Marasco, Antonio, 2002. "An endogenous growth model with quality ladders and consumers’ heterogeneity," MPRA Paper 5389, University Library of Munich, Germany, revised Jan 2007. [Downloadable!]
  3. E. Bilancini & Simone D’Alessandro, 2006. "Functional Distribution, Land Ownership and Industrial Takeoff: The Role of Effective Demand," DEGIT Conference Papers c011_051, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  4. Joan Esteban & Debraj Ray, 2006. "Inequality, Lobbying, and Resource Allocation," American Economic Review, American Economic Association, vol. 96(1), pages 257-279, March. [Downloadable!]
  5. Alcalá, Francisco, 2009. "Time, Quality and Growth," Annals of Computational Economics 4811, Murcia University, DIGITUM. Universidad de Murcia. [Downloadable!]
  6. Gustavo A. Marrero & Juan G. Rodríguez, 2009. "Inequality of Opportunity and Growth," Working Papers 2009-24, FEDEA. [Downloadable!]
  7. Debraj Ray, 2006. "On the dynamics of inequality," Economic Theory, Springer, vol. 29(2), pages 291-306, October. [Downloadable!] (restricted)
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