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Minimum Consumption And Transitional Dynamics In Wealth Distribution

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  • María J. Álvarez
  • Antonia Díaz

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Abstract

This paper investigates the evolution of wealth distribution in a one sector growth model along its transition path. A key feature of the model is that a household´s consumption cannot fall below a positive level each period. This requirement introduces a positive association between the intertemporal elasticity of substitution and household wealth. Households only differ in their initial holdings of capital. The model is calibrated to match some key statistics of the US economy. The level of inequality in the wealth distribution of our artificial economy has a n inverted Ushape. The level of wealth inequality and its evolution resembles that of the US economy. However, our model illustrates that the existence of a Kuznets curve is very sensitive tothe sources of growth: whether it is driven by productivity growth or capital accumulation. Additionally, our model predicts an upsurge in wealth inequality following the productivity slowdown in the 1970´s.

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we015013.

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Date of creation: Jul 2001
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Handle: RePEc:cte:werepe:we015013

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  1. Masao Ogaki & Andrew Atkeson, 1997. "Rate Of Time Preference, Intertemporal Elasticity Of Substitution, And Level Of Wealth," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 564-572, November.
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Citations

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Cited by:
  1. Barnett, Richard C. & Bhattacharya, Joydeep, 2008. "Rejuveniles and growth," European Economic Review, Elsevier, Elsevier, vol. 52(6), pages 1055-1071, August.
  2. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "A Permanent Income Version of the Relative Income Hypothesis," CESifo Working Paper Series 2361, CESifo Group Munich.
  3. Chen, Chien-Liang & Kuan, Chung-Ming & Lin, Chu-Chia, 2007. "Saving and housing of Taiwanese households: New evidence from quantile regression analyses," Journal of Housing Economics, Elsevier, Elsevier, vol. 16(2), pages 102-126, June.
  4. Robert M. Townsend & Kenichi Ueda, 2006. "Financial Deepening, Inequality, and Growth: A Model-Based Quantitative Evaluation -super-1," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 251-293.
  5. Alvarez-Cuadrado, Francisco & Van Long, Ngo, 2011. "The relative income hypothesis," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 35(9), pages 1489-1501, September.
  6. Richard C. Barnett & Marco A. Espinosa-Vega, 2011. "Barriers to Capital Accumulation and the Incidence of Child Labor," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c016_014, DEGIT, Dynamics, Economic Growth, and International Trade.
  7. Marcel Aloy & Gilles De Truchis, 2012. "Estimation and Testing for Fractional Cointegration," Working Papers halshs-00793206, HAL.
  8. Cecilia García-Peñalosa & Stephen J. Turnovsky, 2012. "Income Inequality, Mobility, and the Accumulation of Capital: The Role of Heterogeneous Labor Productivity," Working Papers halshs-00793209, HAL.
  9. Jang-Ting Guo & Anca-Ioana Sirbu & Mark Weder, 2012. "News about Aggregate Demand and the Business Cycle," Working Papers 12-02, Department of Economics, West Virginia University.
  10. Tamotsu Nakamura, 2014. "On Ramsey's conjecture with AK technology," Economics Bulletin, AccessEcon, vol. 34(2), pages 875-884.
  11. Orlando Gomes, 2009. "Stability Analysis in a Monetary Model With a Varying Intertemporal Elasticity of Substitution," The IUP Journal of Monetary Economics, IUP Publications, IUP Publications, vol. 0(2), pages 32-41, May.
  12. San Vicente Portes, Luis, 2009. "On the distributional effects of trade policy: Dynamics of household saving and asset prices," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 49(3), pages 944-970, August.
  13. Ales Bulir & Alma Romero-Barrutieta & Jose Daniel Rodríguez-Delgado, 2011. "The Dynamic Implications of Debt Relief for Low-Income Countries," IMF Working Papers 11/157, International Monetary Fund.
  14. Turnovsky, Stephen J. & Garci­a-Peñalosa, Cecilia, 2008. "Distributional dynamics in a neoclassical growth model: The role of elastic labor supply," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(5), pages 1399-1431, May.
  15. Francesc Obiols-Homs & Carlos Urrutia, 2002. "Evolution of the Distribution of Assets in the Neoclassical Growth Model," Working Papers, Centro de Investigacion Economica, ITAM 0212, Centro de Investigacion Economica, ITAM.

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