Income and wealth distribution in a simple model of growth
AbstractThis paper studies a deterministic one-sector growth model with a constant returns to scale production function and endogenous labor supply. It is shown that the distribution of capital among the agents has an effect on the level of per-capita output. There exists a continuum of stationary equilibria with different levels of per-capita output. If the elasticity of intertemporal substitution is large, a higher output level can be achieved when income inequality is great, that is, when the income distribution is strongly dispersed. If the elasticity of intertemporal substitution is low, the reverse relation holds. The paper shows that countries with identical production technologies and identical preferences may have different GDP levels because wealth is distributed differently among their inhabitants.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 16 (2000)
Issue (Month): 1 ()
Note: Received: January 29, 1999; revised version: October 4, 1999
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Find related papers by JEL classification:
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
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