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A heterogeneous-agent model of growth and inequality for the UK

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Abstract

This paper analyses the effect of wealth inequality on UK economic growth in recent decades with a heterogeneous-agent growth model where agents can enhance individual productivity growth by undertaking entrepreneurship. The model assumes wealthy people are more able to afford the costs of entrepreneurship. Wealth concentration therefore stimulates entrepreneurship among the rich and so aggregate growth, whose fruits in turn are largely captured by the rich. This process creates a mechanism by which inequality and growth are correlated. The model is estimated and tested by indirect inference and is not rejected. Policy-makers face a trade-off between redistribution and growth.

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  • Meenagh, David & Minford, Patrick & Yang, Xiaoliang, 2018. "A heterogeneous-agent model of growth and inequality for the UK," Cardiff Economics Working Papers E2018/17, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2018/17
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    More about this item

    Keywords

    Heterogeneous-agent Model; Entrepreneurship; Aggregate Growth; Wealth Inequality; Redistribution; Indirect Inference;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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