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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)

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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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Publisher 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
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Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2003-02

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Related research
Keywords: neoclassical growth model; heterogeneous agents; aggregation;

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Find related papers by JEL classification:
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

References listed on IDEAS
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  1. Minarik, Joseph J, 1979. "The Size Distribution of Income during Inflation," Review of Income and Wealth, Blackwell Publishing, vol. 25(4), pages 377-92, December.
  2. Juan Mora & Lilia Maliar & Serguei Maliar, 2003. "Income And Wealth Distributions Along The Business Cycle: Implications From The Neoclassical Growth Model," Working Papers. Serie AD 2003-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  3. Kydland, Finn E., 1984. "Labor-force heterogeneity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 173-208, January. [Downloadable!] (restricted)
  4. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November. [Downloadable!] (restricted)
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  5. 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October. [Downloadable!] (restricted)
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  8. Blank, Rebecca M, 1989. "Disaggregating the Effect of the Business Cycle on the Distribution of Income," Economica, London School of Economics and Political Science, vol. 56(222), pages 141-63, May. [Downloadable!] (restricted)
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  9. Francesco Caselli & Jaume Ventura, 2000. "A Representative Consumer Theory of Distribution," American Economic Review, American Economic Association, vol. 90(4), pages 909-926, September. [Downloadable!] (restricted)
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  10. Maliar, Lilia & Maliar, Serguei, 2003. "Parameterized Expectations Algorithm and the Moving Bounds," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 88-92, January.
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  11. Vincenzo Quadrini & José-Víctor Ríos-Rull, 1997. "Understanding the U.S. distribution of wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 22-36. [Downloadable!]
  12. Maliar, Lilia & Maliar, Serguei, 2001. "Heterogeneity in capital and skills in a neoclassical stochastic growth model," Journal of Economic Dynamics and Control, Elsevier, vol. 25(9), pages 1367-1397, September. [Downloadable!] (restricted)
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  13. Lilia Maliar & Serguei Maliar, 2003. "The Representative Consumer in the Neoclassical Growth Model with Idiosyncratic Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 368-380, April. [Downloadable!] (restricted)
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  14. 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. [Downloadable!] (restricted)
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  1. repec:bep:mactop:v:5:y:2005:i:1:p:1238-1238 is not listed on IDEAS
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