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Aspirations and Inequality

Listed author(s):
  • Garance Genicot
  • Debraj Ray

This paper develops a theory of socially determined aspirations, and the interaction of those aspirations with growth and inequality. The interaction is bidirectional: economy-wide outcomes determine individual aspirations, which in turn determine investment incentives and social outcomes. Thus aspirations, income and the distribution of income evolve jointly. When capital stocks lie in some compact set, steady states distributions must exhibit inequality and are typically clustered around local poles. When sustained growth is possible, initial histories matter. Either there is convergence to an equal distribution (with growth) or there is perennial relative divergence across clusters, with within-cluster convergence. A central feature that drives these results 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.

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File URL: http://www.nber.org/papers/w19976.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19976.

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Date of creation: Mar 2014
Publication status: forthcoming in Econometrica
Handle: RePEc:nbr:nberwo:19976
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  1. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2004. "Aspirations, Habit Formation, and Bequest Motive," Working Papers 136, Barcelona Graduate School of Economics.
  2. 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.
  3. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
  4. 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.
  5. Durlauf, S.M. & Johnson, P.A., 1995. "Multiple Regimes and Cross-Country Growth Behavior," Working papers 9419r, Wisconsin Madison - Social Systems.
  6. Dalton, Patricio S; Ghosal, Sayantan; Mani, Anandi, 2010. "Poverty and Aspirations Failure," CAGE Online Working Paper Series 22, Competitive Advantage in the Global Economy (CAGE).
  7. 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.
  8. Jonathan Shalev, 1997. "Loss Aversion Equilibrium," Game Theory and Information 9703001, EconWPA, revised 11 Mar 1997.
  9. 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.
  10. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
  11. B. Douglas Bernheim, 1989. "Intergenerational Altruism, Dynastic Equilibria and Social Welfare," Review of Economic Studies, Oxford University Press, vol. 56(1), pages 119-128.
  12. repec:adr:anecst:y:2001:i:63-64:p:12 is not listed on IDEAS
  13. 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.
  14. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-1064, October.
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