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Dynamic Status Effects, Savings, and Income Inequality

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  • Dioikitopoulos, Evangelos
  • Turnovsky, Stephen
  • Wendner, Ronald

Abstract

This paper advances the hypothesis that the intensity of status preferences depends negatively on the average wealth of society (endogenous dynamic status effect), in accordance with empirical evidence. Our theory replicates the contradictory historical facts of an increasing saving rate along with declining returns to capital over time. By affecting the dynamics of the saving rate, the dynamic status effect raises inequality, thereby providing a behavioural mechanism for the observed diverse dynamics of income inequality across countries. In countries in which the dynamic status effect is strong (weak) inequality rises (declines) over time in response to a positive productivity shock.

Suggested Citation

  • Dioikitopoulos, Evangelos & Turnovsky, Stephen & Wendner, Ronald, 2017. "Dynamic Status Effects, Savings, and Income Inequality," MPRA Paper 81005, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:81005
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    3. Richard Wamalwa Wanzala & Lawrence Ogechukwu Obokoh, 2024. "Savings and Sustainable Economic Growth Nexus: A South African Perspective," Sustainability, MDPI, vol. 16(20), pages 1-26, October.
    4. Nathalie Mathieu-Bolh & Ronald Wendner, 2021. "Conspicuous leisure, time allocation, and obesity Kuznets curves," Graz Economics Papers 2021-09, University of Graz, Department of Economics.
    5. Kirill Borissov & Mikhail Pakhnin & Ronald Wendner, 2024. "Present-Biased Envy, Inequality, and Growth," CESifo Working Paper Series 11090, CESifo.
    6. Borissov, Kirill & Pakhnin, Mikhail & Wendner, Ronald, 2024. "General equilibrium and dynamic inconsistency," Journal of Mathematical Economics, Elsevier, vol. 114(C).
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    8. Jaime Alonso‐Carrera & Stéphane Bouché, 2024. "Intergenerational Transmission of Preferences and the Operativeness of Bequest Motive," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(4), pages 899-932, June.
    9. Christoph Zwick, 2018. "On the origin of current account deficits in the Euro area periphery: A DSGE perspective," Graz Economics Papers 2018-02, University of Graz, Department of Economics.
    10. Jatmiko, Wahyu & Ebrahim, M. Shahid & Smaoui, Houcem, 2023. "Sukūk development and income inequality," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).

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    More about this item

    Keywords

    Status preferences; saving rate; growth; inequality;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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