Jealousy and Wealth Inequality: The Cases of Heterogeneous Preferences and Elastic Labor Supply

Sanou Issa ()
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Sanou Issa: UP2 - Université Panthéon-Assas

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Abstract: This paper examines wealth and income inequalities in a simple neoclassical growth model with consumption externality. Unlike the conventional setups, we assume endogenous labor supply, heterogeneous preferences and heterogeneity of households' initial asset holdings. We highlight that in presence of heterogeneous preferences, when labor supply is elastic, wealth inequality is not deterministic and an initially wealthy and more jealous household could be caught up by an initially less wealthy and less jealous household. Our study also reveals the existence of an additional condition to the reduction of wealth inequality and shows that there is reduction in wealth inequality if wealth is highly unevenly distributed. These results are supported by our numerical simulations.

Keywords: Consumption externality; Income Inequality; Heterogeneous preferences; Labour supply; Status-seeking JEL classification D31; D62; D91; E13; J22; O41 (search for similar items in EconPapers)
Date: 2021-10-28
New Economics Papers: this item is included in nep-dge and nep-lma
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