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Growth and Inequality: Dependence of the Time Path of Productivity Increases (and other Structural Changes)

Author

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  • Manoj Atolia

    () (Department of Economics, Florida State University)

  • Santanu Chatterjee

    () (Department of Economics, Terry College of Business, University of Georgia)

  • Stephen J. Turnovsky

    () (Department of Economics, University of Washington)

Abstract

This paper examines the significance of the time path of a given productivity increase on growth and inequality. We show that whereas the time path impacts only the transitional path of aggregate quantities and has no effect on their ultimate steady-state levels, it has both transitional and permanent consequences for wealth and income distribution. As a result, the growth-inequality trade-off generated by a given discrete increase in productivity contrasts sharply with that obtained when the same ultimate productivity increase is acquired gradually. This is true both in transition and across steady states. We show that a gradual productivity increase can generate a Kuznets-type inverted U-shaped relationship between inequality and per-capita income. The distance from the technology frontier is also shown to have important implications for both the magnitude and persistence of inequality. Finally, our results suggest that economies with similar aggregate structural characteristics may have very different outcomes for income and wealth inequality, depending on the intrinsic nature of the productivity growth path.

Suggested Citation

  • Manoj Atolia & Santanu Chatterjee & Stephen J. Turnovsky, 2009. "Growth and Inequality: Dependence of the Time Path of Productivity Increases (and other Structural Changes)," Working Papers wp2009_01_02, Department of Economics, Florida State University.
  • Handle: RePEc:fsu:wpaper:wp2009_01_02
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    Cited by:

    1. Evangelos V. Dioikitopoulos & Stephen J. Turnovsky & Roland Wendner, 2017. "Dynamic Status Effects, Savings, and Income Inequality," Graz Economics Papers 2017-08, University of Graz, Department of Economics.
    2. Nakamoto, Yasuhiro, 2015. "Heterogeneous EIS and Wealth Distribution in a Neoclassical Growth Model," MPRA Paper 67026, University Library of Munich, Germany.
    3. Chatterjee, Santanu & Turnovsky, Stephen J., 2012. "Infrastructure and inequality," European Economic Review, Elsevier, vol. 56(8), pages 1730-1745.
    4. Jorge Rojas-Vallejos & Stephen Turnovsky, 2015. "Erratum to: The Consequences of Tariff Reduction for Economic Activity and Inequality," Open Economies Review, Springer, vol. 26(4), pages 601-631, September.
    5. Getachew, Yoseph Y. & Turnovsky, Stephen J., 2015. "Productive government spending and its consequences for the growth–inequality tradeoff," Research in Economics, Elsevier, vol. 69(4), pages 621-640.
    6. Stephen J. Turnovsky & Aditi Mitra, 2013. "The Interaction between Human and Physical Capital Accumulation and the Growth-Inequality Trade-off," Journal of Human Capital, University of Chicago Press, vol. 7(1), pages 26-75.
    7. Chen, Ping-ho & Lai, Ching-chong & Chu, Hsun, 2016. "Welfare effects of tourism-driven Dutch disease: The roles of international borrowings and factor intensity," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 381-394.
    8. Amarante, Veronica, 2009. "Income Inequality and Economic Growth in Latin America," Economics PhD Theses 0109, Department of Economics, University of Sussex Business School.
    9. repec:eee:deveco:v:134:y:2018:i:c:p:392-415 is not listed on IDEAS
    10. Fernando Delbianco & Carlos Dabús & María Ángeles Caraballo, 2014. "Income inequality and economic growth: New evidence from Latin America," Revista Cuadernos de Economía, Universidad Nacional de Colombia -FCE - CID, August.
    11. Turnovsky, Stephen J., 2015. "Economic growth and inequality: The role of public investment," Journal of Economic Dynamics and Control, Elsevier, vol. 61(C), pages 204-221.
    12. Stephen J. Turnovsky, 2011. "The Accumulation of Human Capital and Income Inequality in a Two-Sector Economy," Journal of Human Capital, University of Chicago Press, vol. 5(4), pages 418-452.
    13. Stephen J. Turnovsky, 2013. "The relationship between economic growth and inequality," New Zealand Economic Papers, Taylor & Francis Journals, vol. 47(2), pages 113-139, August.

    More about this item

    Keywords

    Reverse shooting; global saddle path; distance mapping;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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