Growth and Inequality Tradeoffs in a Small Open Economy

Yu-chin Chen and Stephen J Turnovsky ()
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Yu-chin Chen: University of Washington

No UWEC-2009-05, Working Papers from University of Washington, Department of Economics

Abstract: This paper analyzes the growth and inequality tradeoff for a small open economy where agents differ in their initial endowments of capital stock and international bond-holdings. Our analysis focuses on the distributional impacts of different structural shocks through their effects on agents’ relative wealth and their labor supply decisions. Supplementing the theoretical analysis with numerical simulations, we demonstrate that openness – access to an international capital market – has important consequences on the growth-inequality tradeoff. Specifically, the growth and distributional consequences of structural shocks depend crucially on whether the underlying heterogeneity originates with the initial endowment of domestic capital or foreign bonds.

New Economics Papers: this item is included in nep-dev, nep-fdg and nep-opm
Date: 2008-09
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Persistent link: http://EconPapers.repec.org/RePEc:udb:wpaper:uwec-2009-05

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