Accumulation and the Extent of Inequality
AbstractThis paper considers an economy where inequality originates from exogenous `talent' or `market luck' shocks and is transmitted over time by the same saving decisions that determine the aggregate rate of accumulation. The resulting interactions between factor- and personal-income distribution are studied in the light of existing analytic results from the precautionary-savings literature, and by numerical solution experiments. Aggregate savings are an increasing function of non-accumulated income variability, as individuals try to self-insure by accumulating wealth. In dynamic general equilibrium, however, non-accumulated income flows (`wages') depend endogenously on aggregate wealth accumulation. The level and/or the anticipated growth rate of wages affect microeconomic saving decisions so as to induce remarkable stability of long-run accumulated wealth distributions across parameter sets.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1187.
Date of creation: May 1995
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Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
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- Lin, Pei-Chien & Huang, Ho-Chuan (River), 2012. "Inequality convergence revisited: Evidence from stationarity panel tests with breaks and cross correlation," Economic Modelling, Elsevier, vol. 29(2), pages 316-325.
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