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Growth and income inequality: a canonical model

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Author Info
Cecilia García-Peñalosa ()
Stephen Turnovsky

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Abstract

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. Copyright Springer-Verlag Berlin/Heidelberg 2006

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File URL: http://hdl.handle.net/10.1007/s00199-005-0616-7
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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 28 (2006)
Issue (Month): 1 (05)
Pages: 25-49
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Handle: RePEc:spr:joecth:v:28:y:2006:i:1:p:25-49

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Related research
Keywords: Endogenous growth; Income inequality; Elastic labor supply.;

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  1. Chu, Angus C., 2009. "Global Poverty Reduction and Pareto-Improving Redistribution," MPRA Paper 16809, University Library of Munich, Germany. [Downloadable!]
  2. Koichi Kawamoto, 2009. "Status-seeking behavior, the evolution of income inequality, and growth," Economic Theory, Springer, vol. 39(2), pages 269-289, May. [Downloadable!] (restricted)
  3. Kazuo Mino & Yasuhiro Nakamoto, 2008. "Progressive Taxation, Wealth Distribution, and Macroeconomic Stability," Discussion Papers in Economics and Business 08-22, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP). [Downloadable!]
  4. Cecilia García-Peñalosa, 2008. "Inequality and growth: Goal conflict or necessary prerequisite?," Working Papers 147, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
  5. Stephen J. Turnovsky & Cecilia Garcia-Pe–alosa, 2006. "The Dynamics of Wealth and Income Distribution in a Neoclassical Growth Model," IDEP Working Papers 0604, Institut d'economie publique (IDEP), Marseille, France, revised Jul 2006. [Downloadable!]
    Other versions:
  6. Cecilia García-Peñalosa & Stephen Turnovsky, 2008. "Consumption externalities: a representative consumer model when agents are heterogeneous," Economic Theory, Springer, vol. 37(3), pages 439-467, December. [Downloadable!] (restricted)
  7. Kirill Borissov & Stéphane Lambrecht, 2009. "Growth and distribution in an AK-model with endogenous impatience," Economic Theory, Springer, vol. 39(1), pages 93-112, April. [Downloadable!] (restricted)
    Other versions:
  8. Takeo Hori, 2009. "Inequality and growth: the roles of life expectancy and relative consumption," Journal of Economics, Springer, vol. 96(1), pages 19-40, January. [Downloadable!] (restricted)
  9. Chu, Angus C. & Peng, Shin-Kun, 2009. "Effects of TRIPS on Growth, Welfare and Income Inequality in an R&D-Growth Model," MPRA Paper 10956, University Library of Munich, Germany. [Downloadable!]
  10. Manoj Atolia & Santanu Chatterjee & Stephen J. Turnovsky, 2009. "Growth and Inequality: Dependence of the Time Path of Productivity Increases (and other Structural Changes)," Working Papers wp2009_01_02, Department of Economics, Florida State University. [Downloadable!]
  11. Chu, Angus C., 2009. "Effects of Patent Policy on Income and Consumption Inequality in an R&D-Growth Model," MPRA Paper 10168, University Library of Munich, Germany. [Downloadable!]
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