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Income and wealth distribution in a simple model of growth

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  • Gerhard Sorger

    (Department of Economics, Queen Mary & Westfield College, Mile End Road, London E1 4NS, UK)

Abstract

This paper studies a deterministic one-sector growth model with a constant returns to scale production function and endogenous labor supply. It is shown that the distribution of capital among the agents has an effect on the level of per-capita output. There exists a continuum of stationary equilibria with different levels of per-capita output. If the elasticity of intertemporal substitution is large, a higher output level can be achieved when income inequality is great, that is, when the income distribution is strongly dispersed. If the elasticity of intertemporal substitution is low, the reverse relation holds. The paper shows that countries with identical production technologies and identical preferences may have different GDP levels because wealth is distributed differently among their inhabitants.

Suggested Citation

  • Gerhard Sorger, 2000. "Income and wealth distribution in a simple model of growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(1), pages 23-42.
    • Handle: RePEc:spr:joecth:v:16:y:2000:i:1:p:23-42
    Note: Received: January 29, 1999; revised version: October 4, 1999
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    References listed on IDEAS

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    More about this item

    Keywords

    Growth; Inequality; One-sector model; Elasticity of intertemporal substitution.;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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