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

Gilbert Mbara

Working Papers from African Economic Research Consortium

Abstract: We investigate the notable decline in wealth and income inequality in Kenya over the 10-year period between 2005 and 2015. Using a calibrated continuous time heterogeneous agent model, we attribute up to 92% of the variation in top wealth 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 characterized by low risk-free interest rates anchored by low debt-to fiscal revenue ratios are key to reducing both wealth and income inequality.

Date: 2024-04-10
New Economics Papers: this item is included in nep-dge and nep-fdg
Note: African Economic Research Consortium
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