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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 standard growth model with two types of agents. Capital owners represent the top quintile of U.S. households while workers represent the remainder. Our tractable model allows us to exactly replicate the observed U.S. time paths of the top quintile income share, capital’s share of income, and key macroeconomic variables over the period 1970 to 2013. For the baseline simulation, the welfare gain for capital owners is 3.7% of per-period consumption while workers suffer a welfare loss of 1.4%. Using counterfactual simulations, we find that both groups could have achieved gains if redistributive government transfers had increased to around 18% of total output by the year 2013 - somewhat higher than the actual value of around 15% observed in the data.

Suggested Citation

  • Kevin J. Lansing & Agnieszka Markiewicz, 2015. "Top Incomes, Rising Inequality, and Welfare," CESifo Working Paper Series 5517, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5517
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp5517.pdf
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    Cited by:

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

    More about this item

    Keywords

    top incomes; inequality; distribution shocks; redistributive transfer payments; welfare;

    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
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • 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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