Income And Wealth Distributions Along The Business Cycle: Implications From The Neoclassical Growth Model
This paper studies the business cycle dynamics of the income and wealth distributions in the context of the neoclassical growth model where agents are heterogeneous in initial wealth and non-acquired skills. Our economy admits a representative consumer which enables us to characterize the distributive dynamics by aggregate dynamics. We show that inequality in both wealth and income follows a counter-cyclical pattern: the former is counter-cyclical because of cyclical fluctuations in labor income, while the latter is counter-cyclical due to the wealth-distribution effect. We find that the predictions of the model about the income distribution dynamics accord well with the U.S. data.
|Date of creation:||Jan 2003|
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- Caselli, F. & Ventura, J., 1996.
"A Representative Consumer Theory of Distribution,"
96-11, Massachusetts Institute of Technology (MIT), Department of Economics.
- 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.
- Gastwirth, Joseph L, 1972. "The Estimation of the Lorenz Curve and Gini Index," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 306-16, August.
- Castaneda, Ana & Diaz-Gimenez, Javier & Rios-Rull, Jose-Victor, 1998. "Exploring the income distribution business cycle dynamics," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 93-130, June.
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