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Minimum Consumption Requirements: Theoretical And Quantitative Implications For Growth And Distribution

  • Chatterjee, Satyajit
  • Ravikumar, B.

We study the impact of a minimum consumption requirement on the rate ofeconomic growth and the evolution of wealth distribution. The requirementintroduces a positive dependence between the intertemporal elasticity ofsubstitution and household wealth. This dependence implies a transitionphase during which the growth rate of per-capita quantities rise towardtheir steady-state values and the distributions of wealth, consumption, andpermanent income become more unequal. We calibrate the minimum consumptionrequirement to match estimates available for a sample of Indian villagersand find that these transitional effects are quantitatively significant anddepend importantly on the economy s steady-state growth rate.

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

Volume (Year): 3 (1999)
Issue (Month): 04 (December)
Pages: 482-505

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Handle: RePEc:cup:macdyn:v:3:y:1999:i:04:p:482-505_01
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  1. Easterly, William, 1994. "Economic stagnation, fixed factors, and policy thresholds," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 525-557, June.
  2. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92 National Bureau of Economic Research, Inc.
  3. Caselli, G & Ventura, J, 1996. "A Representative Consumer Theory of Distribution," Papers 534, Harvard - Institute for International Development.
  4. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
  5. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
  6. Atkeson, Andrew & Ogaki, Masao, 1996. "Wealth-varying intertemporal elasticities of substitution: Evidence from panel and aggregate data," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 507-534, December.
  7. Tamura, Robert, 1996. "Regional economies and market integration," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 825-845, May.
  8. Rosenzweig, Mark R & Wolpin, Kenneth I, 1993. "Credit Market Constraints, Consumption Smoothing, and the Accumulation of Durable Production Assets in Low-Income Countries: Investment in Bullocks in India," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 223-44, April.
  9. Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
  10. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
  11. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May.
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