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The Wealth Distribution And The Demand For Status

  • Luo, Yulei
  • Young, Eric R.

Standard economic theories of asset markets assume that assets are valued entirely for the consumption streams they can finance. This paper examines the introduction of the demand for status (as a function of wealth) into a model of uninsurable idiosyncratic risk. We find that spirit of capitalism preferences lead to less inequality in wealth and more in consumption. They also imply very different responses to a move from a progressive to a flat income tax; with spirit of capitalism preferences, wealth inequality goes down when the economy moves to a flat tax regime.

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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 13 (2009)
Issue (Month): S1 (May)
Pages: 1-30

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Handle: RePEc:cup:macdyn:v:13:y:2009:i:s1:p:1-30_08
Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
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  1. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  2. Heng-fu Zou, 1991. "The spirit of capitalism and long-run growth," Policy Research Working Paper Series 630, The World Bank.
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  5. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
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  7. Christopher D. Carroll, 2000. "Portfolios of the Rich," NBER Working Papers 7826, National Bureau of Economic Research, Inc.
  8. Kongsamut, P. & Rebelo, S. & Xie, D., 1997. "Beyong Balanced Growth," RCER Working Papers 438, University of Rochester - Center for Economic Research (RCER).
  9. Robson, Arthur J, 1992. "Status, the Distribution of Wealth, Private and Social Attitudes to Risk," Econometrica, Econometric Society, vol. 60(4), pages 837-57, July.
  10. Conesa, Juan Carlos & Krueger, Dirk, 2006. "On the optimal progressivity of the income tax code," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1425-1450, October.
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  12. repec:cup:macdyn:v:1:y:1997:i:2:p:387-422 is not listed on IDEAS
  13. Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March.
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  17. Smith, William T, 2001. "How Does the Spirit of Capitalism Affect Stock Market Prices?," Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 1215-32.
  18. repec:tpr:qjecon:v:109:y:1994:i:3:p:659-84 is not listed on IDEAS
  19. Turalay Kenc & Sel Dibooglu, 2003. "How does the spirit of capitalism affect stock market prices in a small-open economy," Computing in Economics and Finance 2003 196, Society for Computational Economics.
  20. Gong, Liutang & Zou, Heng-fu, 2002. "Direct preferences for wealth, the risk premium puzzle, growth, and policy effectiveness," Journal of Economic Dynamics and Control, Elsevier, vol. 26(2), pages 247-270, February.
  21. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
  22. Corneo, Giacomo, 2002. "The efficient side of progressive income taxation," European Economic Review, Elsevier, vol. 46(7), pages 1359-1368, July.
  23. Santiago Budria Rodriguez & Javier Diaz-Gimenez & Vincenzo Quadrini & Jose-Victor Rios-Rull, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35.
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