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How Much Income Inequality Is Too Much?

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  • Jean-Philippe Bouchaud

    (CFM)

Abstract

We propose a highly schematic economic model in which, in some cases, wage inequalities lead to higher overall social welfare. This is due to the fact that high earners can consume low productivity, non essential products, which allows everybody to remain employed even when the productivity of essential goods is high and producing them does not require everybody to work. We derive a relation between heterogeneities in technologies and the minimum Gini coefficient required to maximize global welfare. Stronger inequalities appear to be economically unjustified. Our model may shed light on the role of non-essential goods in the economy, a topical issue when thinking about the post-Covid-19 world.

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  • Jean-Philippe Bouchaud, 2020. "How Much Income Inequality Is Too Much?," Papers 2004.09835, arXiv.org.
    • Handle: RePEc:arx:papers:2004.09835
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    References listed on IDEAS

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    1. Jess Benhabib & Alberto Bisin & Shenghao Zhu, 2011. "The Distribution of Wealth and Fiscal Policy in Economies With Finitely Lived Agents," Econometrica, Econometric Society, vol. 79(1), pages 123-157, January.
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    6. Mr. Jonathan David Ostry & Mr. Andrew Berg & Mr. Charalambos G Tsangarides, 2014. "Redistribution, Inequality, and Growth," IMF Staff Discussion Notes 2014/002, International Monetary Fund.
    7. Piketty, Thomas & Saez, Emmanuel, 2012. "A Theory of Optimal Capital Taxation," CEPR Discussion Papers 8946, C.E.P.R. Discussion Papers.
    8. Jean-Philippe Bouchaud, 2015. "On growth-optimal tax rates and the issue of wealth inequalities," Papers 1508.00275, arXiv.org, revised Aug 2015.
    9. Jonathan David Ostry & Andrew Berg & Charalambos G Tsangarides, 2014. "Redistribution, Inequality, and Growth," IMF Staff Discussion Notes 14/02, International Monetary Fund.
    10. repec:cup:cbooks:9781107013445 is not listed on IDEAS
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    Cited by:

    1. Alexandre Nimubona, 2022. "Health diplomacy to promote multisectoral participation in fighting against fragmentation and increasing budget for internalization of the health financing progress matrix in Burundi," Health Economics Review, Springer, vol. 12(1), pages 1-10, December.

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