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Inequality and Aggregate Savings in the Neoclassical Growth Model

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  • Foellmi, Reto

Abstract

Within the context of the neoclassical growth model I investigate the implications of (initial) endowment inequality when the rich have a higher marginal savings rate than the poor. More unequal societies grow faster in the transition process, and therefore exhibit a higher speed of convergence. Furthermore, there is divergence in consumption and lifetime wealth if the rich exhibit a higher intertemporal elasticity of substitution. Unlike the Solow-Stiglitz model, the steady state is always unique although the consumption function is concave.

Suggested Citation

  • Foellmi, Reto, 2009. "Inequality and Aggregate Savings in the Neoclassical Growth Model," CEPR Discussion Papers 7569, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7569
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    References listed on IDEAS

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    Cited by:

    1. Kazuo MIno & Yasuhiro Nakamoto, 2014. "Conformism and Wealth Distribution," KIER Working Papers 901, Kyoto University, Institute of Economic Research.

    More about this item

    Keywords

    concave consumption function; growth; income distribution; Marginal propensity to consume;

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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