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A Division of Society into the Rich and the Poor: Some Approaches to Modeling

Kirill Borissov () and Mikhail Pakhnin ()

Journal of the New Economic Association, 2018, vol. 40, issue 4, 32-59

Abstract: In recent years, economists have shown an increasing interest in the distribution of income and wealth within a society. In particular, this is manifested in the popularity of the Thomas Piketty's book "Capital in the Twenty-First Century". Recent empirical evidence shows that in many different countries the gap between rich and poor is growing. Thus theoretical economists face a number of important questions. Where does economic inequality come from? How does inequality depend on economic growth? And vice versa, how does inequality affect economic dynamics? In this paper we provide a survey of some theoretical growth models which study income and wealth distribution in a market economy. These models suggest that in the long run the population inevitably splits into two unequal classes. Some consumers accumulate wealth and eventually own the whole capital stock in the economy, while the others draw down their wealth for current consumption. It can be argued that the division into the rich and the poor is, in a sense, an immanent property of a market economy.

Keywords: economic growth; inequality; income and wealth distribution; time preference (search for similar items in EconPapers)
JEL-codes: D31 D50 D61 D91 O40 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:nea:journl:y:2018:i:40:p:32-59