The income fluctuation problem and the evolution of wealth

Qingyin Ma, John Stachurski and Alexis Akira Toda

Journal of Economic Theory, 2020, vol. 187, issue C

Abstract: We analyze the household savings problem in a general setting where returns on assets, non-financial income and impatience are all state dependent and fluctuate over time. All three processes can be serially correlated and mutually dependent. Rewards can be bounded or unbounded, and wealth can be arbitrarily large. Extending classic results from an earlier literature, we determine conditions under which (a) solutions exist, are unique and are globally computable, (b) the resulting wealth dynamics are stationary, ergodic and geometrically mixing, and (c) the wealth distribution has a Pareto tail. We show how these results can be used to extend recent studies of the wealth distribution. Our conditions have natural economic interpretations in terms of asymptotic growth rates for discounting and return on savings.

Keywords: Income fluctuation; Optimality; Stochastic stability; Wealth distribution (search for similar items in EconPapers)
JEL-codes: C61 C62 C63 D14 E21 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (8)

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Working Paper: The Income Fluctuation Problem and the Evolution of Wealth (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:187:y:2020:i:c:s0022053120300107

DOI: 10.1016/j.jet.2020.105003

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