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Wealth distribution, endogenous fiscal policy and growth: status-seeking implications

Listed author(s):
  • Thi Kim Cuong PHAM

We investigate the wealth distribution and endogenous fiscal policy in a two-classes growth model in which individuals exhibit a desire for social status. The latter is in- creasing with individual wealth and decreasing with the average level of the society. First, we show that status seeking is crucial in determining the long-run wealth dis- tribution: agents with stronger status motive end up holding a higher level of wealth. Second, a higher inequality can be associated with a higher growth if it is due to a stronger incentive to accumulate wealth of one class of agents. Third, the model implies that a higher growth rate may reduce welfare of one class of agents and raise welfare of the other one. Finally, when fiscal policy is determined through a voting mechanism, an increase in the strength of status motive of majoritarian class may lead to a reduced political equilibrium growth.

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Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2004-11.

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Date of creation: 2004
Handle: RePEc:ulp:sbbeta:2004-11
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