DP7569 Inequality and Aggregate Savings in the Neoclassical Growth Model
|Publication Date:||November 2009|
|Keyword(s):||concave consumption function, growth, income distribution, Marginal propensity to consume|
|JEL(s):||D30, O10, O40|
|Programme Areas:||Public Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=7569|
Within the context of the neoclassical growth model I investigate the implications of (initial) endowment inequality when the rich have a higher marginal savings rate than the poor. More unequal societies grow faster in the transition process, and therefore exhibit a higher speed of convergence. Furthermore, there is divergence in consumption and lifetime wealth if the rich exhibit a higher intertemporal elasticity of substitution. Unlike the Solow-Stiglitz model, the steady state is always unique although the consumption function is concave.