The Dynamics of Inequality

Xavier Gabaix, Jean-Michel Lasry, Pierre-Louis Lions () and Benjamin Moll
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Jean-Michel Lasry: CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Pierre-Louis Lions: Collège de France - Chaire Équations aux dérivées partielles et applications - CdF (institution) - Collège de France
Benjamin Moll: Princeton University

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Abstract: The past forty years have seen a rapid rise in top income inequality in the United States. While there is a large number of existing theories of the Pareto tail of the long‐run income distributions, almost none of these address the fast rise in top inequality observed in the data. We show that standard theories, which build on a random growth mechanism, generate transition dynamics that are too slow relative to those observed in the data. We then suggest two parsimonious deviations from the canonical model that can explain such changes: "scale dependence" that may arise from changes in skill prices, and "type dependence," that is, the presence of some "high‐growth types." These deviations are consistent with theories in which the increase in top income inequality is driven by the rise of "superstar" entrepreneurs or managers.

Keywords: Investment; Consumption; Macroeconomics; Distribution; Market structure; Microeconomics (search for similar items in EconPapers)
Date: 2016-11
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Citations: View citations in EconPapers (1)

Published in Econometrica, 2016, 84 (6), pp.2071-2111. ⟨10.3982/ECTA13569⟩

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Related works:
Journal Article: The Dynamics of Inequality (2016)
Working Paper: The Dynamics of Inequality (2016)
Working Paper: The Dynamics of Inequality (2015)
Working Paper: The Dynamics of Inequality (2015)
Working Paper: The Dynamics of Inequality (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05313937

DOI: 10.3982/ECTA13569

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