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Growth and Distribution in Models with Endogenous Impatience

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  • Kirill Borissov
  • Stephane Lambrecht

Abstract

This paper combines two strands of the literature on inequality and distribution issues: the classical approach, which insists on the division of society into classes characterized by different saving propensities, and the social conflict approach, which considers that inequality inflicts direct and indirect costs to economic development. Along the paper two simple models are studied: an exogenous and an endogenous growth model. In these two models, we assume that each consumer's subjective discount factor is determined endogenously and depends on economic inequality through the following two channels. On the one hand, it is positively related to the individual consumer's relative wealth. On the other hand, it is negatively affected by a simple aggregate measure of social conflict. We show that, unlike models with exogenously given discount rates, steady state equilibria in our two models are indeterminate and that the set of all equilibria is a continuum which can be parameterized by a simple index of income inequality. Economic development, proxied by national output or by the growth rate, is ambiguously related to the inequality index. However, under some reasonable assumptions, the dependence of economic development on this index has an inverted U-shaped form.

Suggested Citation

  • Kirill Borissov & Stephane Lambrecht, 2005. "Growth and Distribution in Models with Endogenous Impatience," EUSP Department of Economics Working Paper Series Ec-03/05, European University at St. Petersburg, Department of Economics, revised Oct 2005.
  • Handle: RePEc:eus:wpaper:ec0305
    Note: Presented at the First meeting of the Society for the Study of Economic Inequality (ECINEQ), Universitat de les Illes Baleares, Palma de Mallorca, Spain, July 20-22, 2005, http://www.uib.es/congres/ecopub/ecineq/papers/045borisov.pdf.
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-1198, December.
    3. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," American Economic Review, American Economic Association, vol. 90(2), pages 120-125, May.
    4. Luigi L. Pasinetti, 1962. "Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth," Review of Economic Studies, Oxford University Press, vol. 29(4), pages 267-279.
    5. Cowell, Frank A & Jenkins, Stephen P, 1995. "How Much Inequality Can We Explain? A Methodology and an Application to the United States," Economic Journal, Royal Economic Society, vol. 105(429), pages 421-430, March.
    6. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
    7. Von Schlicht Ekkehart, 1975. "A Neoclassical Theory of Wealth Distribution," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 189(1-2), pages 78-96, January.
    8. Philippe Aghion & Patrick Bolton, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 151-172.
    9. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters,in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92 National Bureau of Economic Research, Inc.
    10. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    11. Borissov, Kirill, 2002. "Indeterminate steady-state equilibria in a one-sector model," Economics Letters, Elsevier, vol. 77(1), pages 125-130, September.
    12. Smith, Adam, 1975. "The Glasgow Edition of the Works and Correspondence of Adam Smith: An Inquiry into the Nature and Causes of the Wealth of Nations Volume 1," OUP Catalogue, Oxford University Press, number 9780199269563 edited by Todd,.
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    Cited by:

    1. Kirill Borissov & Stéphane Lambrecht, 2009. "Growth and distribution in an AK-model with endogenous impatience," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 39(1), pages 93-112, April.

    More about this item

    Keywords

    wealth distribution; intertemporal choice; growth; development;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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