Inequality and aggregate savings in the neoclassical growth model

Reto Foellmi ()

No iewwp395, IEW - Working Papers from Institute for Empirical Research in Economics - IEW

Abstract: 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.

Keywords: Marginal propensity to consume; income distribution; growth; concave consumption function. (search for similar items in EconPapers)
JEL-codes: O40 D30 O10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-dge
Date: 2008-11
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Persistent link: http://EconPapers.repec.org/RePEc:zur:iewwpx:395

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