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Wealth distribution, endogenous fiscal policy and growth: status-seeking implications

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Author Info
Thi Kim Cuong PHAM
Abstract

We investigate the wealth distribution and endogenous fiscal policy in a two-classes growth model in which individuals exhibit a desire for social status. The latter is in- creasing with individual wealth and decreasing with the average level of the society. First, we show that status seeking is crucial in determining the long-run wealth dis- tribution: agents with stronger status motive end up holding a higher level of wealth. Second, a higher inequality can be associated with a higher growth if it is due to a stronger incentive to accumulate wealth of one class of agents. Third, the model implies that a higher growth rate may reduce welfare of one class of agents and raise welfare of the other one. Finally, when fiscal policy is determined through a voting mechanism, an increase in the strength of status motive of majoritarian class may lead to a reduced political equilibrium growth.

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Paper provided by Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg in its series Working Papers of BETA with number 2004-11.

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Date of creation: 2004
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Handle: RePEc:ulp:sbbeta:2004-11

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Related research
Keywords: Individual welfare; endogenous growth; endogenous Þscal policy; status seeking; wealth distribution;

Find related papers by JEL classification:
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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