Minimum Consumption Requirements: Theoretical And Quantitative Implications For Growth And Distribution
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.
Volume (Year): 3 (1999)
Issue (Month): 04 (December)
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