Personal Income Inequality and Aggregate Demand

Laura Barbosa de Carvalho and Armon Rezai

No 2014_23, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: This paper presents a theoretical and empirical investigation of how changes in the size distribution of income can affect aggregate demand and the demand regime of an economy. After presenting empirical evidence for the US economy that the propensity to save increases significantly from the bottom to the top quintile of wage earners, we demonstrate that more equal distributions always lead to higher output in the traditional neo-Kaleckian macroeconomic model. We also present conditions under which a reduction of income inequality among workers turns demand more wage-led. This view is supported by the results of an econometric study for the United States (1967-2010) which show that the rise after 1980 in income inequality has made the US economy more profit-led.

Keywords: Income inequality; demand regimes; Neo-Kaleckian model; personal and functional income distribution (search for similar items in EconPapers)
JEL-codes: C32 D31 D33 E25 (search for similar items in EconPapers)
Date: 2014-10-29
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (41)

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Journal Article: Personal income inequality and aggregate demand (2016)
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