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Minimum consumptions requirements: theoretical and quantitative implications for growth and distribution

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Abstract

The authors study the impact of a minimum consumption requirement on the rate of economic growth and the evolution of wealth distribution. The requirement introduces a positive dependence between the intertemporal elasticity of substitution and household wealth. This dependence implies a transition phase during which the growth rate of per-capita quantities rise toward their steady-state values and the distributions of wealth, consumption, and permanent income become more unequal. The authors calibrate the minimum consumption requirement to match estimates available for a sample of Indian villagers and find that these transitional effects are quantitatively significant and depend importantly on the economy's steady-state growth rate. NOTE: This paper refers to figures not currently available with this electronic version. For a hard copy of the figures, call the Research Department's Publications Desk at 215-574-6428 and ask for Working Paper 97-15.

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  • Satyajit Chatterjee & B. Ravikumar, 1997. "Minimum consumptions requirements: theoretical and quantitative implications for growth and distribution," Working Papers 97-15, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:97-15
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    Keywords

    Consumption (Economics); Wealth;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • D30 - Microeconomics - - Distribution - - - General

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