Income Inequality and Growth: Calibration and Simulation for the Kenyan Economy

Gilbert Mbara

Journal of African Economies, 2024, vol. 33, issue Supplement_1, 114-135

Abstract: We investigate the notable decline in wealth and income inequality in the Kenya over the 10 year period between 2005 to 2015. Using a calibrated continuous time heterogeneous agent model, we attribute up to 80% of the variation in top wealth and income inequality to a persistent but slow increase in the return to capital, a low risk free rate, and rising ‘effective’ income tax rates. Our study suggests that a macroeconomic environment characterised by low risk-free interest rates anchored by low debt-to-fiscal revenue ratios are key to reducing both wealth and income inequality.

Keywords: income and wealth inequality, heterogeneous agent macroeconomics, Pareto distribution, calibration, KenyaJEL classification: D3; E25 (search for similar items in EconPapers)
Date: 2024
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