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Top Incomes, Rising Inequality and Welfare

Author

Listed:
  • 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
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    File URL: https://doi.org/10.1111/ecoj.12411
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    1. repec:bfr:quarte:2017:48:04 is not listed on IDEAS
    2. repec:bfr:bullbf:2017:214:05 is not listed on IDEAS
    3. repec:bfr:quarte:2017:48:05 is not listed on IDEAS
    4. repec:bfr:quarte:2017:48:01 is not listed on IDEAS
    5. 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.
    6. repec:bfr:quarte:2017:48:06 is not listed on IDEAS
    7. Bullard, James B., 2014. "Income inequality and monetary policy: a framework with answers to three questions," Speech 235, Federal Reserve Bank of St. Louis.
    8. 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.
    9. repec:bfr:bullbf:2017:214:06 is not listed on IDEAS
    10. repec:bfr:bullbf:2017:214:02 is not listed on IDEAS
    11. Ferrara, Maria & Tirelli, Patrizio, 2017. "Equitable fiscal consolidations," Economic Modelling, Elsevier, vol. 61(C), pages 207-223.
    12. repec:bfr:bullbf:2017:214:01 is not listed on IDEAS
    13. 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).
    14. repec:bfr:bullbf:2017:214:04 is not listed on IDEAS
    15. repec:bfr:quarte:2017:48:02 is not listed on IDEAS
    16. repec:bfr:bullbf:2017:214:03 is not listed on IDEAS

    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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