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Inequality assessment in a dynamic framework with heterogenous agents

Author

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  • Arsen Palestini

    (Sapienza University of Rome)

  • Giuseppe Pignataro

    (University of Bologna)

Abstract

We propose a method to carry out an inequality assessment in a dynamic and cross-sectional framework, by applying the dynamic version of a suitable inequality index, such as the Gini coefficient, as a function of time. We use our methodology to a setup where the optimal value functions is the individuals’ income flows while the initial conditions characterize their level of wealth. When the Hamilton–Jacobi–Bellman system of equations can be solved in closed form, the monotone path of the income distribution is established. Extending the model according to a government intervention gives the possibility to study, first policy for reducing income inequality under a specific exogenous target, and second to minimise income inequality across individuals.

Suggested Citation

  • Arsen Palestini & Giuseppe Pignataro, 2023. "Inequality assessment in a dynamic framework with heterogenous agents," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(2), pages 469-494, July.
    • Handle: RePEc:spr:epolit:v:40:y:2023:i:2:d:10.1007_s40888-022-00275-7
    DOI: 10.1007/s40888-022-00275-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Gini; HJB equations; Feedback strategy; Optimal control theory;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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