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Heterogeneous Mark-ups, Demand Composition, and the Inequality-Growth Relation

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  • Foellmi, Reto

    (University of Zurich)

  • Josef Zweim¸ller

Abstract

We explore the relationship between inequality and demand structure in an endogenous growth model where consumers expand consumption along a hierarchy of needs. This enables us to study the impact of inequality on demand for innovative products, on their prices, and hence on research incentives. As a result, changes in inequality affect the aggregate price structure and there may be market exclusion of the poor. With exclusion, higher inequality tends to increase growth because the profit share increases. However, higher inequality due to a bigger group of poor people may reduce growth. Instead, if the innovators always sell to all, inequality has an unambiguously negative impact on growth.

Suggested Citation

  • Foellmi, Reto & Josef Zweim¸ller, 2002. "Heterogeneous Mark-ups, Demand Composition, and the Inequality-Growth Relation," Royal Economic Society Annual Conference 2002 76, Royal Economic Society.
    • Handle: RePEc:ecj:ac2002:76
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    Cited by:

    1. Christophe Ehrhart, 2009. "The effects of inequality on growth: a survey of the theoretical and empirical literature," Working Papers 107, ECINEQ, Society for the Study of Economic Inequality.
    2. Saint-Paul, Gilles, 2004. "Are intellectual property rights unfair?," Labour Economics, Elsevier, vol. 11(1), pages 129-144, February.
    3. Reto Foellmi und Josef Zweim�ller, "undated". "Inequality and Economic Growth - European Versus U.S. Experiences," IEW - Working Papers 158, Institute for Empirical Research in Economics - University of Zurich.
    4. Reto Foellmi & Josef Zweimuller, 2006. "Income Distribution and Demand-Induced Innovations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(4), pages 941-960.
    5. Shen, Ling, 2006. "Inequality and Growth: A Joint Analysis of Demand and Supply," Bonn Econ Discussion Papers 6/2006, University of Bonn, Bonn Graduate School of Economics (BGSE).
    6. Shen, Ling, 2004. "Education, Income Distribution and Innovation," Bonn Econ Discussion Papers 11/2004, University of Bonn, Bonn Graduate School of Economics (BGSE).

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