Heterogeneous Mark-ups, Demand Composition, and the Inequality-Growth Relation
AbstractWe explore the relationship between inequality and demand structure in an endogenous growth model where consumers expand consumption along a hierarchy of needs. This enables us to study the impact of inequality on demand for innovative products, on their prices, and hence on research incentives. As a result, changes in inequality affect the aggregate price structure and there may be market exclusion of the poor. With exclusion, higher inequality tends to increase growth because the profit share increases. However, higher inequality due to a bigger group of poor people may reduce growth. Instead, if the innovators always sell to all, inequality has an unambiguously negative impact on growth.
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Bibliographic InfoPaper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 76.
Date of creation: 29 Aug 2002
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