The role of the wealth distribution on output volatility
We explore the link between wealth inequality and business cycle fluctuations in a two-sector neoclassical growth model with endogenous labor and heterogeneous agents. Assuming that wealth inequality is described by the distribution of shares of capital, we show that in the most plausible situations wealth equality is a stabilizing factor. In particular, when wealth is Pareto distributed and preferences generate non linear absolute risk tolerance indices, a rise in the Gini index may only be associated to a rise in volatility.When individual preferences are such that the individual absolute risk tolerance indices are linear, as with HARA utility, even a low level of taste heterogeneity ensures that a rise in inequality may not reduce volatility, and this independently of the wealth distribution.Finally, we note that such a clear result is at odd with the existing related literature.
|Date of creation:||22 May 2008|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00281379|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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.:
- Nishimura, Kazuo & Venditti, Alain, 2007. "Indeterminacy in discrete-time infinite-horizon models with non-linear utility and endogenous labor," Journal of Mathematical Economics, Elsevier, vol. 43(3-4), pages 446-476, April.
- Bosi, Stefano & Seegmuller, Thomas, 2006.
"Optimal cycles and social inequality: What do we learn from the Gini index?,"
Research in Economics,
Elsevier, vol. 60(1), pages 35-46, March.
- Stefano Bosi & Thomas Seegmuller, 2006. "Optimal Cycles and Social Inequality: What Do We Learn from the Gini Index?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00194182, HAL.
- Hara, Chiaki & Huang, James & Kuzmics, Christoph, 2007.
"Representative Consumer's Risk Aversion and Efficient Risk-Sharing Rules,"
323, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
- Hara, Chiaki & Huang, James & Kuzmics, Christoph, 2007. "Representative consumer's risk aversion and efficient risk-sharing rules," Journal of Economic Theory, Elsevier, vol. 137(1), pages 652-672, November.
- Chiaki Hara & James Huang & Christoph Kuzmics, 2006. "Representative Consumer's Risk Aversion and Efficient Risk-Sharing Rules," KIER Working Papers 620, Kyoto University, Institute of Economic Research.
- Hara, C. & Christoph Kuzmics, 2004. "Representative Consumer's Risk Aversion and Efficient Risk-Sharing Rules," Cambridge Working Papers in Economics 0452, Faculty of Economics, University of Cambridge.
- Bewley, Truman, 1982. "An integration of equilibrium theory and turnpike theory," Journal of Mathematical Economics, Elsevier, vol. 10(2-3), pages 233-267, September.
- Bosi, Stefano & Magris, Francesco & Venditti, Alain, 2005. "Competitive equilibrium cycles with endogenous labor," Journal of Mathematical Economics, Elsevier, vol. 41(3), pages 325-349, April.
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:halshs-00281379. 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: (CCSD)
If references are entirely missing, you can add them using this form.