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THE DYNAMICS OF WEALTH INEQUALITY IN A SIMPLE RAMSEY MODEL: A NOTE ON THE ROLE OF PRODUCTION FLEXIBILITY

Published online by Cambridge University Press:  01 April 2009

Cecilia García-Peñalosa  and
Stephen J. Turnovsky
Cecilia García-Peñalosa*
Affiliation:
CNRS and GREQAM, Marseille
Stephen J. Turnovsky
Affiliation:
University of Washington, Seattle
*
Address correspondence to: Cecilia García-Peñalosa, GREQAM, Centre de la Vieille Charité, 2 rue de la Charité, 13236 Marseille, France; e-mail: [email protected].
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Abstract

It has been shown that the Ramsey growth model with agents that differ in their initial wealth endowments is compatible with a wide range of distributional outcomes, yet it is difficult to characterize under which circumstances the distribution of wealth becomes more or less unequal. In this note, we characterize the steady state distribution of wealth and compare it to the initial distribution, obtaining analytical conditions for one to be more skewed than the other. We show that whether wealth inequality increases or decreases during the transition to the steady state depends on simple and intuitive conditions on parameter values. Standard values for these parameters indicate that it is more likely that wealth inequality decreases as the economy accumulates capital.

Keywords

GrowthWealth DistributionTransitional Dynamics
Type
Notes
Information
Macroeconomic Dynamics , Volume 13 , Issue 2 , April 2009 , pp. 250 - 262
Copyright
Copyright © Cambridge University Press 2009

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