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Minimum Consumption And Transitional Dynamics In Wealth Distribution

  • María J. Álvarez
  • Antonia Díaz


This paper investigates the evolution of wealth distribution in a one sector growth model along its transition path. A key feature of the model is that a household´s consumption cannot fall below a positive level each period. This requirement introduces a positive association between the intertemporal elasticity of substitution and household wealth. Households only differ in their initial holdings of capital. The model is calibrated to match some key statistics of the US economy. The level of inequality in the wealth distribution of our artificial economy has a n inverted Ushape. The level of wealth inequality and its evolution resembles that of the US economy. However, our model illustrates that the existence of a Kuznets curve is very sensitive tothe sources of growth: whether it is driven by productivity growth or capital accumulation. Additionally, our model predicts an upsurge in wealth inequality following the productivity slowdown in the 1970´s.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we015013.

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Date of creation: Jul 2001
Date of revision:
Handle: RePEc:cte:werepe:we015013
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  1. Francesc Obiols-Homs & Carlos Urrutia, 2002. "Evolution of the Distribution of Assets in the Neoclassical Growth Model," Working Papers 0212, Centro de Investigacion Economica, ITAM.
  2. Javier Díaz-Giménez & Vincenzo Quadrini & José-Víctor Ríos-Rull, 1997. "Dimensions of inequality: facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-21.
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  4. Rebelo, Sergio, 1991. "Growth in open economies," Policy Research Working Paper Series 799, The World Bank.
  5. Huggett, Mark & Ventura, Gustavo, 2000. "Understanding why high income households save more than low income households," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 361-397, April.
  6. Satyajit Chatterjee & B. Ravikumar & B. Ravikumar, 1997. "Minimum consumptions requirements: theoretical and quantitative implications for growth and distribution," Working Papers 97-15, Federal Reserve Bank of Philadelphia.
  7. Atkeson, Andrew & Ogaki, Masao, 1996. "Wealth-varying intertemporal elasticities of substitution: Evidence from panel and aggregate data," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 507-534, December.
  8. Robert M. Townsend, . "Risk and Insurance in Village India," University of Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
  9. Atkinson, A B, 1997. "Bringing Income Distribution in from the Cold," Economic Journal, Royal Economic Society, vol. 107(441), pages 297-321, March.
  10. Lindert, Peter H., 2000. "Three centuries of inequality in Britain and America," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 3, pages 167-216 Elsevier.
  11. Aghion, Philippe & Caroli, Eve & Garcia-Penalosa, Cecilia, 1999. "Inequality and economic growth: the perspective of the new growth theories," CEPREMAP Working Papers (Couverture Orange) 9908, CEPREMAP.
  12. Stiglitz, Joseph E, 1969. "Distribution of Income and Wealth among Individuals," Econometrica, Econometric Society, vol. 37(3), pages 382-97, July.
  13. King, R.G. & Rebelo, S.T., 1989. "Transitional Dynamics And Economic Growth In The Neoclassical Model," RCER Working Papers 206, University of Rochester - Center for Economic Research (RCER).
  14. Rosenzweig, Mark R. & Wolpin, Kenneth I., 1989. "Credit Market Constraints, Consumption Smoothing and the Accumulation of Durable Production Assets in Low-Income Countries: Investments in Bullocks in India," Bulletins 7487, University of Minnesota, Economic Development Center.
  15. Bénabou, Roland, 1996. "Inequality and Growth," CEPR Discussion Papers 1450, C.E.P.R. Discussion Papers.
  16. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
  17. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
  18. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
  19. Masao Ogaki & Andrew Atkeson, 1997. "Rate Of Time Preference, Intertemporal Elasticity Of Substitution, And Level Of Wealth," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 564-572, November.
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  22. repec:cup:macdyn:v:3:y:1999:i:4:p:482-505 is not listed on IDEAS
  23. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May.
  24. Robert J. Gordon, 2000. "Interpreting the "One Big Wave" in U.S. Long-Term Productivity Growth," NBER Working Papers 7752, National Bureau of Economic Research, Inc.
  25. Maddison, Angus, 1987. "Growth and Slowdown in Advanced Capitalist Economies: Techniques of Quantitative Assessment," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 649-98, June.
  26. Avery, Robert B & Kennickell, Arthur B, 1991. "Household Saving in the U.S," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 37(4), pages 409-32, December.
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