The paradox of thrift in an inegalitarian neoclassical economy

Mohamed Mabrouk ()

Business and Economic Horizons (BEH), 2016, vol. 12, issue 3

Abstract: Schilcht (1975) and Bourguignon (1981) studied the case of a convex saving function in the Stiglitz (1969) model. They have shown that if one of the two proportions of the rich or the poor is below a certain threshold, there is a two-class equilibrium. However, they have only proved the existence of this threshold. We give here a system of equations to calculate this threshold which we interpret as the maximum proportion of rich for having a stable two-class configuration. If the proportion of rich exceeds this threshold, the economy enters a phase of decline although the golden-rule capital has not yet been reached. The mechanism of this decline recalls the description given in Keynes (1936), of the decline which happens when there is too much savings in an inegalitarian context. This is an example of what is known as the "paradox of thrift". It is remarkable that this paradox takes place in a neoclassical setting that does not include key Keynesian elements such as saturation of demand, monetization of savings, short-term effects, expectation problems, involuntary unemployment and rigidities. Numerical simulations are given to illustrate and analyze the mechanisms involved.

Keywords: Financial; Economics (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://ageconsearch.umn.edu/record/264612/files/2 ... economy_pp.75-93.pdf (application/pdf)
https://ageconsearch.umn.edu/record/264612/files/2 ... 3.pdf?subformat=pdfa (application/pdf)

Related works:
Journal Article: The paradox of thrift in an inegalitarian neoclassical economy (2016)
Working Paper: The Paradox of Thrift in an Inegalitarian Neoclassical Economy (2016)
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: https://EconPapers.repec.org/RePEc:ags:pdcbeh:264612

DOI: 10.22004/ag.econ.264612

Access Statistics for this article

More articles in Business and Economic Horizons (BEH) from Prague Development Center (PRADEC) Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().