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Growth and Inequality Tradeoffs in a Small Open Economy

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Author Info
Yu-chin Chen (University of Washington)
Stephen J. Turnovsky (University of Washington)

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Abstract

This 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 agents’ relative wealth and their labor supply decisions. Supplementing the theoretical analysis with numerical simulations, we demonstrate that openness – access to an international capital market – 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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Paper provided by University of Washington, Department of Economics in its series Working Papers with number UWEC-2009-05.

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Date of creation: Sep 2008
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Handle: RePEc:udb:wpaper:uwec-2009-05

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  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. [Downloadable!] (restricted)
  2. Anthony B Atkinson, 2003. "Income Inequality in OECD Countries: Data and Explanations," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 35-52, January. [Downloadable!] (restricted)
  4. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September. [Downloadable!] (restricted)
  5. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Blackwell Publishing, vol. 63(2), pages 237-64, April. [Downloadable!] (restricted)
  6. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May. [Downloadable!] (restricted)
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  7. Guvenen, Fatih, 2006. "Reconciling conflicting evidence on the elasticity of intertemporal substitution: A macroeconomic perspective," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1451-1472, October. [Downloadable!] (restricted)
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  8. Galor, Oded & Tsiddon, Daniel, 1997. "Technological Progress, Mobility, and Economic Growth," American Economic Review, American Economic Association, vol. 87(3), pages 363-82, June. [Downloadable!] (restricted)
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  9. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1993. "The Carnegie Conjecture: Some Empirical Evidence," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 413-35, May. [Downloadable!] (restricted)
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  10. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June. [Downloadable!] (restricted)
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  11. 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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  12. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  13. Saint-Paul, Gilles & Verdier, Thierry, 1993. "Education, democracy and growth," Journal of Development Economics, Elsevier, vol. 42(2), pages 399-407, December. [Downloadable!] (restricted)
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  14. Yann Algan & Arnaud Cheron & Jean-Olivier Hairault & Francois Langot, 2003. "Wealth Effect on Labor Market Transitions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 156-178, January. [Downloadable!] (restricted)
  15. Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June. [Downloadable!] (restricted)
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