 Public debt, positional concerns, and wealth inequalityKirill Borissov and Andrei Kalk Journal of Economic Behavior & Organization, 2020, vol. 170, issue C, 96-111 Abstract: We consider an AK growth model with positional concerns and public debt financed by distortionary income taxes. We show that if positional concerns are not too strong, there is a threshold level of the debt-to-GDP ratio. For the debt-to-GDP ratio below this level, the economy converges to a unique egalitarian balanced-growth equilibrium, whereas if this ratio is above the threshold level, the economy eventually settles on a two-class balanced-growth equilibrium. The rate of growth in the egalitarian equilibrium is higher than that in any possible two-class equilibrium. Thus, a reduction in public debt may cause the economy to switch from the two-class regime to the egalitarian regime and accelerate growth. Our results also suggest that policies aimed at reducing initial inequality using public debt may, in fact, increase wealth inequality in the long run. Keywords: Public debt; Wealth distribution; Positional concerns; Growth (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:170:y:2020:i:c:p:96-111 DOI: 10.1016/j.jebo.2019.11.029 Access Statistics for this article Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D. More articles in Journal of Economic Behavior & Organization from Elsevier |
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