Working Paper: CEPR ID: DP10756
Authors: Nicola Borri; Pietro Reichlin
Abstract: We use a simple two-sector, life-cycle economy with bequests to explain the increasing wealth to income ratio, housing wealth and wealth inequality that have been observed in several countries over the long-run as a consequence of a rising labor efficiency in manufacturing (housing cost disease). When consumption inequality across households is sufficiently large, the housing cost disease has adverse effects on a measure of social welfare based on an egalitarian principle: the higher the housing's value appreciation, the lower the welfare benefit of a rising labor efficiency in manufacturing.
Keywords: Capital; Housing; Productivity; Wealth; Wealth Inequality
JEL Codes: D9; E2; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Labor efficiency in manufacturing (L23) | Housing prices (R31) |
| Housing prices (R31) | Wealth-to-income ratio (D31) |
| Labor efficiency in manufacturing (L23) | Wealth-to-income ratio (D31) |
| Housing prices (R31) | Wealth inequality (D31) |
| Labor efficiency in manufacturing (L23) | Wealth inequality (D31) |
| Wealth-to-income ratio (D31) | Wealth inequality (D31) |
| Housing prices (R31) | Social welfare (I38) |
| Labor efficiency in manufacturing (L23) | Average labor productivity (J24) |