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Income Inequality and Growth: Calibration and Simulation for the Kenyan Economy

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  • Gilbert Mbara

Abstract

We investigate the notable decline in wealth and income inequality in the Kenya over the 10 year period between 2005 to 2015. Using a calibrated continuous time heterogeneous agent model, we attribute up to 80% of the variation in top wealth and income inequality to a persistent but slow increase in the return to capital, a low risk free rate, and rising ‘effective’ income tax rates. Our study suggests that a macroeconomic environment characterised by low risk-free interest rates anchored by low debt-to-fiscal revenue ratios are key to reducing both wealth and income inequality.

Suggested Citation

  • Gilbert Mbara, 2024. "Income Inequality and Growth: Calibration and Simulation for the Kenyan Economy," Journal of African Economies, Centre for the Study of African Economies, vol. 33(Supplemen), pages 114-135.
    • Handle: RePEc:oup:jafrec:v:33:y:2024:i:supplement_1:p:114-135.
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    File URL: http://hdl.handle.net/10.1093/jae/ejae017
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    More about this item

    Keywords

    income and wealth inequality; heterogeneous agent macroeconomics; Pareto distribution; calibration; KenyaJEL classification: D3; E25;
    All these keywords.

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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