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The Rich And The Poor In A Simple Model Of Growth And Distribution

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  • Borissov, Kirill

Abstract

We consider a model of economic growth with altruistic agents who care about their consumption and the disposable income of their offspring. The agents' consumption and the offspring's disposable income are subject to positional concerns. We show that, if the measure of consumption-related positional concerns is sufficiently low and/or the measure of offspring-related positional concerns is sufficiently high, then there is a unique steady-state equilibrium, which is characterized by perfect income and wealth equality, and all intertemporal equilibira converge to it. Otherwise, in steady-state equilibria, the population splits into two classes, the rich and the poor; under this scenario, in any intertemporal equilibrium, all capital is eventually owned by the households that were the wealthiest from the outset and all other households become poor.

Suggested Citation

  • Borissov, Kirill, 2016. "The Rich And The Poor In A Simple Model Of Growth And Distribution," Macroeconomic Dynamics, Cambridge University Press, vol. 20(7), pages 1934-1952, October.
    • Handle: RePEc:cup:macdyn:v:20:y:2016:i:07:p:1934-1952_00
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    References listed on IDEAS

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    1. Mino, Kazuo & Nakamoto, Yasuhiro, 2012. "Consumption externalities and equilibrium dynamics with heterogeneous agents," Mathematical Social Sciences, Elsevier, vol. 64(3), pages 225-233.
    2. Stéphane Lambrecht & Philippe Michel & Emmanuel Thibault, 2006. "Capital Accumulation and Fiscal Policy in an OLG Model with Family Altruism," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(3), pages 465-486, August.
    3. Von Schlicht Ekkehart, 1975. "A Neoclassical Theory of Wealth Distribution," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 189(1-2), pages 78-96, January.
    4. Fisher, Walter H. & Heijdra, Ben J., 2009. "Keeping up with the ageing Joneses," Journal of Economic Dynamics and Control, Elsevier, vol. 33(1), pages 53-64, January.
    5. Moav, Omer, 2002. "Income distribution and macroeconomics: the persistence of inequality in a convex technology framework," Economics Letters, Elsevier, vol. 75(2), pages 187-192, April.
    6. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
    7. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June.
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    Cited by:

    1. Borissov, Kirill & Hashimzade, Nigar, 2022. "Fiscal policy and inequality in a model with endogenous positional concerns," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    2. Borissov, Kirill & Kalk, Andrei, 2020. "Public debt, positional concerns, and wealth inequality," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 96-111.
    3. Borissov, K. & Pakhnin, M., 2018. "A Division of Society into the Rich and the Poor: Some Approaches to Modeling," Journal of the New Economic Association, New Economic Association, vol. 40(4), pages 32-59.

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    More about this item

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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