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Time Preference and the Distributions of Wealth and Income

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  • Suen, Richard M. H.

Abstract

This paper presents a dynamic competitive equilibrium model in which heterogeneity in time preferences alone can generate the observed patterns of wealth and income inequality in the United States. This model generalizes the standard deterministic neoclassical growth model by introducing (i) a direct preference for wealth by the consumers and (ii) human capital formation. The first feature prevents the wealth distribution from collapsing into a degenerate distribution. The second feature generates a strong positive correlation between earnings and wealth across agents. A calibrated version of this model is able to replicate the wealth and income distributions of the United States.

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  • Suen, Richard M. H., 2010. "Time Preference and the Distributions of Wealth and Income," MPRA Paper 26021, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:26021
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Time Preference and the Distributions of Wealth and Income
      by Christian Zimmermann in NEP-DGE blog on 2010-03-14 19:55:32
    2. “Complex Mainstream Model Derives Observed Result Using Obvious Assumptions”
      by Nick Krafft in open economics on 2010-03-15 20:30:42

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    Cited by:

    1. Richard M. H. Suen, 2014. "Time Preference And The Distributions Of Wealth And Income," Economic Inquiry, Western Economic Association International, vol. 52(1), pages 364-381, January.
    2. Andersen, Torben M. & Bhattacharya, Joydeep & Grodecka-Messi, Anna & Mann, Katja, 2022. "Pension reform and wealth inequality: evidence from Denmark," Working Paper Series 411, Sveriges Riksbank (Central Bank of Sweden).
    3. Hung-Ju Chen & Dongpeng Liu & Xiangbo Liu, 2018. "Social Status, Labour Market Frictions and Endogenous Growth," The Japanese Economic Review, Springer, vol. 69(2), pages 226-250, June.
    4. Acedański, Jan, 2017. "Heterogeneous expectations and the distribution of wealth," Journal of Macroeconomics, Elsevier, vol. 53(C), pages 162-175.
    5. Chen, Zhanhui & Yang, Bowen, 2019. "In search of preference shock risks: Evidence from longevity risks and momentum profits," Journal of Financial Economics, Elsevier, vol. 133(1), pages 225-249.
    6. Aaron Cooke & Hyun Lee & Kai Zhao, 2017. "Houses Divided: A Model of Intergenerational Transfers, Differential Fertility and Wealth Inequality," Working papers 2017-22, University of Connecticut, Department of Economics.
    7. Wang, Wei & Suen, Richard M. H., 2015. "Diversity and Economic Growth in a Model with Progressive Taxation," MPRA Paper 67569, University Library of Munich, Germany.
    8. Aristotelis Boukouras, 2016. "Capitalist Spirit and the Markets: Why Income Inequality Matters," Discussion Papers in Economics 16/16, Division of Economics, School of Business, University of Leicester.

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    More about this item

    Keywords

    Inequality; Heterogeneity; Time Preference; Human Capital;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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