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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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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26021.

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Date of creation: Sep 2010
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Handle: RePEc:pra:mprapa:26021

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Keywords: Inequality; Heterogeneity; Time Preference; Human Capital;

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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 14:55:32
  2. “Complex Mainstream Model Derives Observed Result Using Obvious Assumptions”
    by Nick Krafft in open economics on 2010-03-15 15:30:42

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