Ghiglino, Christian Wealth inequality and dynamic stability. UNSPECIFIED. UNSPECIFIED.
Ghiglino, Christian Wealth inequality and dynamic stability. UNSPECIFIED. UNSPECIFIED.
Ghiglino, Christian Wealth inequality and dynamic stability. UNSPECIFIED. UNSPECIFIED.
Abstract
In this paper we explore the link between wealth inequality and stability in a two-sector neoclassical growth model with heterogeneous agents. The stability of the steady state depends on the various parameters of the model and in particular on individual preferences. We show that when consumers have identical preferences and the inverse of absolute risk aversion (or risk tolerance) is a strictly convex function, inequality is a factor that favors instability. In the opposite case, inequality favors stability. Our characterization also shows that whenever absolute risk tolerance is linear, as when preferences exhibit hyperbolic absolute risk aversion (HARA), wealth heterogeneity is neutral. As there is not yet evidence on the concavity of absolute risk tolerance, our results unfortunately do not lead to a unique conclusion on the sign of the effect of wealth inequality on stability.
Item Type: | Monograph (UNSPECIFIED) |
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Uncontrolled Keywords: | D30; D50; D90; O41; Economic growth; Heterogeneity; Wealth and Income Inequality; Instability |
Subjects: | H Social Sciences > HB Economic Theory |
Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Economics, Department of |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 16 Jul 2012 19:26 |
Last Modified: | 06 Jan 2022 13:37 |
URI: | http://repository.essex.ac.uk/id/eprint/3014 |