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Wealth inequality and aggregate demand

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  • Ederer, Stefan
  • Rehm, Miriam

Abstract

The paper investigates how including the distribution of wealth changes the demand effects of redistributing functional income. It develops a model with an endogenous wealth distribution and shows that the endogenous rise in wealth inequality resulting from a redistribution towards profits weakens the growth effects of this redistribution. Consequently, a wage-led regime becomes more strongly wage-led. A profit-led regime on the other hand becomes less profit-led and there may even be a regime switch - in this case the short-run profit-led economy becomes wage-led in the long run due to the endogenous effects of wealth inequality. The paper thereby provides a possible explanation for the instability of demand regimes over time.

Suggested Citation

  • Ederer, Stefan & Rehm, Miriam, 2019. "Wealth inequality and aggregate demand," ifso working paper series 4, University of Duisburg-Essen, Institute for Socio-Economics (ifso).
  • Handle: RePEc:zbw:ifsowp:4
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    Cited by:

    1. Tonni, Lorenzo, 2021. "Personal income distribution and the endogeneity of the demand regime," MPRA Paper 114585, University Library of Munich, Germany, revised 15 Sep 2022.
    2. Tonni, Lorenzo, 2021. "Personal income distribution and the endogeneity of the demand regime," MPRA Paper 108298, University Library of Munich, Germany.

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    More about this item

    Keywords

    Wealth; Distribution; Aggregate Demand;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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