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Income Distribution, Market Structure, and Individual Welfare

  • Tarasov Alexander


    (University of Munich)

This paper explores how income distribution affects market structure, prices, and economic well-being of different consumer groups. I consider a general equilibrium model of monopolistic competition with free entry, heterogenous firms and consumers that share identical but non-homothetic preferences. The results in the paper suggest that poverty reduction might be of a greater importance than lowering income inequality, as lower income inequality does not necessarily lead to welfare gains of the poor. In particular, I show that higher income inequality may benefit the poor via a trickle-down effect operating through the entry of firms into the market.

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Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 9 (2009)
Issue (Month): 1 (December)
Pages: 1-39

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Handle: RePEc:bpj:bejtec:v:9:y:2009:i:1:n:39
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  1. repec:tpr:qjecon:v:104:y:1989:i:3:p:537-64 is not listed on IDEAS
  2. Foellmi, Reto & Zweimuller, Josef, 2004. "Inequality, market power, and product diversity," Economics Letters, Elsevier, vol. 82(1), pages 139-145, January.
  3. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  4. repec:tpr:qjecon:v:109:y:1994:i:2:p:465-90 is not listed on IDEAS
  5. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
  6. Stokey, Nancy L, 1991. "The Volume and Composition of Trade between Rich and Poor Countries," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 63-80, January.
  7. repec:tpr:qjecon:v:107:y:1992:i:4:p:1283-302 is not listed on IDEAS
  8. Reto Foellmi & Josef Zweim├╝ller, . "Income Distribution and Demand-induced Innovations," IEW - Working Papers 212, Institute for Empirical Research in Economics - University of Zurich.
  9. Devashish Mitra & Vitor Trindade, 2005. "Inequality and trade," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1253-1271, November.
  10. Kevin M. Murphy & Andrei Shleifer & Robert Vishny, 1988. "Income Distribution, Market Size, and Industrialization," NBER Working Papers 2709, National Bureau of Economic Research, Inc.
  11. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-22, December.
  12. Krishna, Kala & Yavas, Cemile, 2005. "When trade hurts: Consumption indivisibilities and labor market distortions," Journal of International Economics, Elsevier, vol. 67(2), pages 413-427, December.
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