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Top Incomes, Rising Inequality and Welfare

Author

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  • Kevin J. Lansing
  • Agnieszka Markiewicz

Abstract

We introduce permanently shifting income shares into a growth model with workers and capital owners. The model exactly replicates the US time paths of the top quintile income share, capital's share of income and key macroeconomic variables from 1970 to 2014. Welfare effects depend on changes in the time pattern of agents’ consumption relative to a counterfactual scenario that holds income shares and the transfer†output ratio constant. Short†run declines in workers’ consumption are only partially offset by longer†term gains from higher transfers and more capital per worker. The baseline simulation delivers large welfare gains for capital owners and significant welfare losses for workers.

Suggested Citation

  • Kevin J. Lansing & Agnieszka Markiewicz, 2018. "Top Incomes, Rising Inequality and Welfare," Economic Journal, Royal Economic Society, vol. 128(608), pages 262-297, February.
  • Handle: RePEc:wly:econjl:v:128:y:2018:i:608:p:262-297
    DOI: 10.1111/ecoj.12411
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    Cited by:

    1. Slama, S. & Toubon, H., 2017. "Les organismes d’assurance en France : évolution des placements en 2016," Bulletin de la Banque de France, Banque de France, issue 214, pages 23-34.
    2. Ariane Hautcoeur & Jean-Luc Cayssials, 2017. "French direct investment stocks - French holdings of foreign equity increased in 2015 and 2016," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 48, pages 45-60, Winter.
    3. Mathias Klein & Christopher Krause, 2019. "Income Redistribution, Consumer Credit, and Keeping up with the Riches," Discussion Papers of DIW Berlin 1816, DIW Berlin, German Institute for Economic Research.
    4. Balard, M. & Boileau, A., 2017. "Des résultats semestriels 2017 très solides pour les principaux groupes industriels et commerciaux français," Bulletin de la Banque de France, Banque de France, issue 214, pages 57-71.
    5. François Haas, 2017. "Growing inequalities in the American model," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 48, pages 61-72, Winter.
    6. Agnieszka (A.P.) Markiewicz & Rafal Raciborski, 2018. "Income Inequality and Stock Market Returns," Tinbergen Institute Discussion Papers 18-075/IV, Tinbergen Institute.
    7. Ferrara, Maria & Tirelli, Patrizio, 2017. "Equitable fiscal consolidations," Economic Modelling, Elsevier, vol. 61(C), pages 207-223.
    8. Candus, E. & Pfister, C. & Sédillot, F., 2017. "Où s’investit l’épargne des Français ?," Bulletin de la Banque de France, Banque de France, issue 214, pages 5-21.
    9. Émilie Candus & Christian Pfister & Franck Sédillot, 2017. "Where do French people invest their savings?," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 48, pages 5-22, Winter.
    10. Kevin J. Lansing, 2015. "Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 67-103, October.
    11. Hélène Charasson-Jasson, 2017. "The debt of major French groups: changes and financing choices," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 48, pages 73-90, Winter.
    12. Lucas Hafemann & Paul Rudel & Joerg Schmidt, 2017. "Moving Closer or Drifting Apart: Distributional Effects of Monetary Policy," MAGKS Papers on Economics 201721, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    13. James B. Bullard, 2014. "Income inequality and monetary policy: a framework with answers to three questions," Speech 235, Federal Reserve Bank of St. Louis.
    14. Haas, F., 2017. "Les inégalités croissantes du modèle américain," Bulletin de la Banque de France, Banque de France, issue 214, pages 45-55.
    15. Maria Ferrara & Patrizio Tirelli, 2014. "Fiscal Consolidations: Can We Reap the Gain and Escape the Pain?," Working Papers 283, University of Milano-Bicocca, Department of Economics, revised Oct 2014.
    16. Maria, Ferrara & Patrizio, Tirelli, 2019. "Disinflation, Inequality and Welfare in a TANK Model," Working Papers 402, University of Milano-Bicocca, Department of Economics, revised Feb 2019.
    17. Samuel Slama & Hector Toubon, 2017. "Insurance undertakings in France: investment developments in 2016," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 48, pages 23-34, Winter.
    18. Parasmo, A. & Cayssials, J.-L., 2017. "Le solde des flux d’investissements directs de la France à nouveau excédentaire en 2016," Bulletin de la Banque de France, Banque de France, issue 214, pages 35-44.
    19. Charasson-Jasson, H., 2017. "L’endettement des grands groupes français : comment évolue-t-il ? Que finance-t-il ?," Bulletin de la Banque de France, Banque de France, issue 214, pages 73-83.
    20. Andréa Parasmo & Jean-Luc Cayssials, 2017. "French net direct investment flows were back in surplus in 2016," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 48, pages 35-44, Winter.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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