Contagion Adverse Degree, Income Inequality and Economic Growth

By introducing the effects of the pandemic into an endogenous economic growth model, with a financial system, among human, physical and financial capitals, diminishing returns, constant scale effects and heterogenic agents, the impact by the contagion adverse degree in households is modelled. Results are: a) contagion adverse degree affects intertemporal marginal substitution rate of households and production process for industry; b) short and long run economic growth rate are also affected by the contagion adverse degree of households; c) human capital growth rate and distribution dynamics relies on contagion adverse degree as well; d) in the absent of a financial system, poor households will allocate less time to leisure if they want to consume more or increase human capital or both when the contagion adverse degree is low, and viceversa; e) physical and human capital ratio of the economy relies only in one sector when there is none financial system. Consequently, economic growth rate is lower since only one sector performs production activities while having a contagion adverse degree low; f) rises in output or decreases in salary due to the contagion adverse degree lead to increases in inequality; g) inequality decreases when human capital goes up; h) physical capital generates small and positive changes in inequality; i) financial capital causes positive impacts on inequality; j) inequality decreases if total multifactorial productivity increases; k) macroeconomic equilibrium depends in negative ways because of contagion adverse degree.