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Accumulation and the Extent of Inequality

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  • Bertola, Giuseppe

Abstract

This paper considers an economy where inequality originates from exogenous `talent' or `market luck' shocks and is transmitted over time by the same saving decisions that determine the aggregate rate of accumulation. The resulting interactions between factor- and personal-income distribution are studied in the light of existing analytic results from the precautionary-savings literature, and by numerical solution experiments. Aggregate savings are an increasing function of non-accumulated income variability, as individuals try to self-insure by accumulating wealth. In dynamic general equilibrium, however, non-accumulated income flows (`wages') depend endogenously on aggregate wealth accumulation. The level and/or the anticipated growth rate of wages affect microeconomic saving decisions so as to induce remarkable stability of long-run accumulated wealth distributions across parameter sets.

Suggested Citation

  • Bertola, Giuseppe, 1995. "Accumulation and the Extent of Inequality," CEPR Discussion Papers 1187, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1187
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    Cited by:

    1. Lin, Pei-Chien & Huang, Ho-Chuan (River), 2012. "Inequality convergence revisited: Evidence from stationarity panel tests with breaks and cross correlation," Economic Modelling, Elsevier, vol. 29(2), pages 316-325.

    More about this item

    Keywords

    Factor-Income Distribution; Savings; Uninsurable Risk;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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