The role of the wealth distribution on output volatility

Christian Ghiglino () and Alain Venditti ()

Economics Discussion Papers from University of Essex, Department of Economics

Abstract: We explore the link between wealth inequality and business cycle fluctuations in a two-sector neoclassical growth model with endogenous labor and heterogeneous agents. Assuming that wealth inequality is described by the distribution of shares of capital, we show that in the most plausible situations wealth equality is a stabilizing factor. In particular, when wealth is Pareto distributed and preferences generate non-linear absolute risk tolerance indices, a rise in the Gini index may only be associated to a rise in volatility. When individual preferences are such that the individual absolute risk tolerance indices are linear, as with HARA utility, even a low level of taste heterogeneity ensures that a rise in inequality may not reduce volatility, and this independently of the wealth distribution. Finally, we note that such a clear result is at odd with the existing related literature.

New Economics Papers: this item is included in nep-dge
Date: 2008-05-21
View list of references

Downloads: (external link)
http://www.essex.ac.uk/economics/discussion-papers/papers-text/dp653.pdf

Related works:
Working Paper: The role of the wealth distribution on output volatility (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:esx:essedp:653

Ordering information: This working paper can be ordered from
Discussion Papers Administrator, Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, U.K.
http://www.essex.ac. ... /papers-request.shtm

Access Statistics for this paper

More papers in Economics Discussion Papers from University of Essex, Department of Economics
Contact information at EDIRC.
Series data maintained by Essex Economics Web Manager ().