Inequality and Aggregate Savings in the Neoclassical Growth Model

Reto Foellmi

No 7569, CEPR Discussion Papers from Centre for Economic Policy Research

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: Concave consumption function; Growth; Income distribution; Marginal propensity to consume (search for similar items in EconPapers)
JEL-codes: D30 O10 O40 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-dge
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Related works:
Working Paper: Inequality and Aggregate Savings in the Neoclassical Growth Model (2010)
Working Paper: Inequality and aggregate savings in the neoclassical growth model (2008)
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