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Time Preference and the Distributions of Wealth and Income

  • Richard M. H. Suen

    ()

    (Department of Economics, University of California Riverside)

This paper presents a dynamic competitive equilibrium model with heterogeneous time pref- erences that can account for the observed patterns of wealth and income inequality in the United States. This model generalizes the standard neoclassical growth model by including (i) a demand for status by the consumers and (ii) human capital formation. The Örst feature prevents the wealth distribution from collapsing into a degenerate distribution. The second feature generates a strong positive correlation between earnings and wealth across agents. A calibrated version of this model succeeds in replicating the wealth and income distributions of the United States.Length: 38 pages

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File URL: http://economics.ucr.edu/repec/ucr/wpaper/10-04.pdf
File Function: First version, 2010
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Paper provided by University of California at Riverside, Department of Economics in its series Working Papers with number 201004.

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Date of creation: Feb 2010
Date of revision: Feb 2010
Handle: RePEc:ucr:wpaper:201004
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