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Income And Wealth Distributions Along The Business Cycle: Implications From The Neoclassical Growth Model

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Author Info

  • Juan Mora

    ()
    (Universidad de Alicante)

  • Lilia Maliar

    ()
    (Universidad de Alicante)

  • Serguei Maliar

    (Universidad de Alicante)

Abstract

This paper studies the business cycle dynamics of the income and wealth distributions in the context of the neoclassical growth model where agents are heterogeneous in initial wealth and non-acquired skills. Our economy admits a representative consumer which enables us to characterize the distributive dynamics by aggregate dynamics. We show that inequality in both wealth and income follows a counter-cyclical pattern: the former is counter-cyclical because of cyclical fluctuations in labor income, while the latter is counter-cyclical due to the wealth-distribution effect. We find that the predictions of the model about the income distribution dynamics accord well with the U.S. data.

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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2003-02.

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Length: 30 pages
Date of creation: Jan 2003
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2003-02

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Keywords: neoclassical growth model; heterogeneous agents; aggregation;

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References

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  1. Gastwirth, Joseph L, 1972. "The Estimation of the Lorenz Curve and Gini Index," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 306-16, August.
  2. Caselli, F. & Ventura, J., 1996. "A Representative Consumer Theory of Distribution," Working papers 96-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May.
  4. Castaneda, Ana & Diaz-Gimenez, Javier & Rios-Rull, Jose-Victor, 1998. "Exploring the income distribution business cycle dynamics," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 93-130, June.
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Cited by:
  1. 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, vol. 32(5), pages 1399-1431, May.
  2. Cecilia Garcia-Peñalosa & Stephen Turnovsky, 2013. "Income Inequality, Mobility and the Accumulation of Capital," CESifo Working Paper Series 4559, CESifo Group Munich.
  3. Marcel Aloy & Gilles de Truchis, 2012. "Estimation and Testing for Fractional Cointegration," AMSE Working Papers 1215, Aix-Marseille School of Economics, Marseille, France.
  4. 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.

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