Growth and Inequality in a Small Open Economy
AbstractThis paper analyzes the growth and inequality tradeoff for a small open economy where agents differ in their initial endowments of capital stock and international bond-holdings. Our analysis focuses on the distributional impacts of different structural shocks through their effects on agentsâ€™ relative wealth and their labor supply decisions. Supplementing the theoretical analysis with numerical simulations, we demonstrate that openness â€“ access to an international capital market â€“ has important consequences on the growth-inequality tradeoff. Specifically, the growth and distributional consequences of structural shocks depend crucially on whether the underlying heterogeneity originates with the initial endowment of domestic capital or foreign bonds.
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Bibliographic InfoPaper provided by University of Washington, Department of Economics in its series Working Papers with number UWEC-2009-05-FC.
Date of creation: Sep 2008
Date of revision: Nov 2009
Publication status: Forthcoming in Journal of Macroeconomics
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