Working Paper: CEPR ID: DP7569
Authors: Reto Foellmi
Abstract: Within the context of the neoclassical growth model I investigate the implications of (initial) endowment inequality when the rich have a higher marginal savings rate than the poor. More unequal societies grow faster in the transition process, and therefore exhibit a higher speed of convergence. Furthermore, there is divergence in consumption and lifetime wealth if the rich exhibit a higher intertemporal elasticity of substitution.Unlike the Solow-Stiglitz model, the steady state is always unique although the consumption function is concave.
Keywords: Concave Consumption Function; Growth; Income Distribution; Marginal Propensity to Consume
JEL Codes: D30; O10; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| initial inequality (C62) | growth rates (O40) |
| higher marginal savings rates among the rich (D14) | faster growth during the transition process (O49) |
| initial endowment inequality (D63) | unique steady state (C62) |
| higher intertemporal elasticity of substitution among the rich (D15) | divergence in consumption and lifetime wealth (E21) |
| inequality (D63) | higher aggregate savings (E21) |
| marginal propensities to consume (MPC) (E21) | capital accumulation (E22) |
| inequality (D63) | accumulation process (E22) |
| inequality (D63) | growth path (O41) |