Relative capital accumulation with heterogeneous individuals
The purpose of this paper is to show how differences in individuals’ labour productivities cause differences in their accumulation of capital, and thereby analysing the evolution of the income distribution. There are three cases of interest: (i) the high productive accumulate relatively more capital [growing inequality], (ii) no individual accumulates relatively more capital [neutrality], (iii) the low productive accumulate relatively more [diminishing inequality]. Which of these cases is generated depends on the price dynamics (the growth rate of wages and the level of the interest rate relative to the rate of time preference), together with the preferences for consumption. The exact conditions for the price dynamics to generate (i), (ii) and (iii) are derived. Furthermore, since the price dynamics is endogenous in general equilibrium, we find the conditions for preferences and technology that determine relative capital accumulation. We find (in general equilibrium) that growing economies typically cause the high productive to accumulate more capital than the low productive if preferences are Decreasing Absolute Risk Aversion, and shrinking economies cause the less productive to accumulate more (i.e. decumulate less). The relations are reversed for Constant and Increasing Relative Risk Aversion. The final part of the paper analyses the effects of capital taxation on the income distribution.
|Date of creation:||01 Dec 2009|
|Contact details of provider:|| Postal: Durham University Business School, Mill Hill Lane, Durham DH1 3LB, England|
Phone: +44 (0)191 334 5200
Fax: +44 (0)191 334 5201
Web page: http://www.dur.ac.uk/business
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stiglitz, Joseph E, 1969.
"Distribution of Income and Wealth among Individuals,"
Econometric Society, vol. 37(3), pages 382-397, July.
- Joseph E. Stiglitz, 1967. "Distribution of Income and Wealth Among Individuals," Cowles Foundation Discussion Papers 238, Cowles Foundation for Research in Economics, Yale University.
- Joseph E. Stiglitz, 1978. "Notes on Estate Taxes, Redistribution, and the Concept of Balanced Growth Path Incidence," NBER Chapters,in: Research in Taxation, pages 137-150 National Bureau of Economic Research, Inc.
- Stiglitz, Joseph E, 1978. "Notes on Estate Taxes, Redistribution, and the Concept of Balanced Growth Path Incidence," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 137-150, April.
- Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
- Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- Robert A. Pollak, 1971. "Additive Utility Functions and Linear Engel Curves," Review of Economic Studies, Oxford University Press, vol. 38(4), pages 401-414.
- Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
- Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:dur:durham:2009_06. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (IT Office)
If references are entirely missing, you can add them using this form.