Income and Wealth Distributions Along the Business Cycle: Implications from the Neoclassical Growth Model

Lilia Maliar, Serguei Maliar and Juan Mora ()

The B.E. Journal of Macroeconomics, 2005, vol. 5, issue 1, 28

Abstract: This paper studies the business cycle dynamics of income and wealth distributions in the context of the neoclassical growth model where agents are heterogeneous in initial wealth and non-acquired skills. Our economy admits a representative consumer which enables us to characterize distributive dynamics by the evolution of aggregate quantities. We show that inequality in both wealth and income follow a countercyclical pattern: the former is countercyclical because labor income is more sensitive to the business cycle than capital income, while the latter is countercyclical due to the wealth-distribution effect. We find that the predictions of the model about the income distribution dynamics accord well with the U.S. data.

Keywords: Neoclassical growth model; heterogeneous agents; aggregation; business cycle; income and wealth distributions; inequality (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (17)

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Working Paper: INCOME AND WEALTH DISTRIBUTIONS ALONG THE BUSINESS CYCLE: IMPLICATIONS FROM THE NEOCLASSICAL GROWTH MODEL (2003)
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DOI: 10.2202/1534-5998.1238

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