Aspirations and Inequality
This paper develops a theory in which society-wide economic outcomes shape individual aspirations, which affect the investment incentives of individuals. Through its impact on investments, aspirations in turn affect ambient social outcomes. We explore this two-way link. A central feature is that aspirations that are moderately above an individual's current standard of living tend to encourage investment, while still higher aspirations may lead to frustration and lower investment. When integrated with the feedback effect from investment, we are led to a theory in which aspirations and income evolve jointly, and the social determinants of preferences play an important role. We examine conditions under which growth is compatible with long-run equality in the distribution of income. More generally, we describe steady state income distributions, which are typically clustered around local poles. Finally, the theory has predictions for the growth rates along the cross-section of income. We use these predictions to calibrate the model so that it fits growth data by income percentile for 43 countries, and back out the implicit aspirations-formation process that underlies these observations.
|Date of creation:||Mar 2014|
|Date of revision:|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Macours, Karen & Vakis, Renos, 2009. "Changing households'investments and aspirations through social interactions : evidence from a randomized transfer program," Policy Research Working Paper Series 5137, The World Bank.
- Clark, Andrew E & Oswald, Andrew J, 1993.
"Satisfaction and Comparison Income,"
Economics Discussion Papers
10018, University of Essex, Department of Economics.
- Durlauf, S.M. & Johnson, P.A., 1995.
"Multiple Regimes and Cross-Country Growth Behavior,"
9419r, Wisconsin Madison - Social Systems.
- Durlauf, Steven N & Johnson, Paul A, 1995. "Multiple Regimes and Cross-Country Growth Behaviour," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 365-84, Oct.-Dec..
- Durlauf, S.N. & Johnson, P.A., 1994. "Multiple Regimes and Cross-Country Growth Behavior," Working papers 9419, Wisconsin Madison - Social Systems.
- Eliana La Ferrara & Alberto Chong & Suzanne Duryea, 2008.
"Soap Operas and Fertility: Evidence from Brazil,"
Research Department Publications
4573, Inter-American Development Bank, Research Department.
- Eliana La Ferrara & Suzanne Duryea & Alberto E. Chong, 2008. "Soap Operas and Fertility: Evidence from Brazil," IDB Publications (Working Papers) 6743, Inter-American Development Bank.
- Chong, Alberto & Duryea, Suzanne & La Ferrara, Eliana, 2008. "Soap Operas and Fertility: Evidence from Brazil," CEPR Discussion Papers 6785, C.E.P.R. Discussion Papers.
- repec:adr:anecst:y:2001:i:63-64:p:12 is not listed on IDEAS
- SHALEV, Jonathan, 1997.
"Loss aversion equilibrium,"
CORE Discussion Papers
1997023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Oded Galor & Joseph Zeira, 2013.
"Income Distribution and Macroeconomics,"
2013-12, Brown University, Department of Economics.
- Dalton, P.S. & Ghosal, S. & Mani, A., 2011.
"Poverty and Aspirations Failure,"
2011-124, Tilburg University, Center for Economic Research.
- Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October.
- Maria Grazia Pittau & Roberto Zelli, 2004. "Testing for changing shapes of income distribution: Italian evidence in the 1990s from kernel density estimates," Empirical Economics, Springer, vol. 29(2), pages 415-430, 05.
- Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2004.
"Aspirations, Habit Formation, and Bequest Motive,"
136, Barcelona Graduate School of Economics.
- B. Douglas Bernheim, 1989. "Intergenerational Altruism, Dynastic Equilibria and Social Welfare," Review of Economic Studies, Oxford University Press, vol. 56(1), pages 119-128.
- Maria Grazia Pittau & Roberto Zelli & Paul A. Johnson, 2010. "Mixture Models, Convergence Clubs, And Polarization," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(1), pages 102-122, 03.
- Robert Jensen & Emily Oster, 2007. "The Power of TV: Cable Television and Women's Status in India," NBER Working Papers 13305, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:19976. 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: ()
If references are entirely missing, you can add them using this form.