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Wealth inequality and aggregate demand

Stefan Ederer and Miriam Rehm

Metroeconomica, 2021, vol. 72, issue 2, 405-424

Abstract: The paper investigates how including the distribution of wealth changes the demand effects of redistributing functional income. It develops a model with an endogenous wealth distribution and shows that the endogenous rise in wealth inequality resulting from a redistribution toward profits weakens the growth effects of this redistribution. Consequently, a wage‐led regime becomes more strongly wage‐led. A profit‐led regime on the other hand becomes less profit‐led and there may even be a regime switch––in this case the short‐run profit‐led economy becomes wage‐led in the long run due to the endogenous effects of wealth inequality. The paper thereby provides a possible explanation for the instability of demand regimes over time.

Date: 2021
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https://doi.org/10.1111/meca.12326

Related works:
Working Paper: Wealth inequality and aggregate demand (2019) Downloads
Working Paper: Wealth inequality and aggregate demand (2019) Downloads
Working Paper: Wealth inequality and aggregate demand (2019) Downloads
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