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How Much Income Inequality Is Too Much?

Jean-Philippe Bouchaud
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Jean-Philippe Bouchaud: CFM

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Abstract: We propose a highly schematic economic model in which, in some cases, wage inequalities lead to higher overall social welfare. This is due to the fact that high earners can consume low productivity, non essential products, which allows everybody to remain employed even when the productivity of essential goods is high and producing them does not require everybody to work. We derive a relation between heterogeneities in technologies and the minimum Gini coefficient required to maximize global welfare. Stronger inequalities appear to be economically unjustified. Our model may shed light on the role of non-essential goods in the economy, a topical issue when thinking about the post-Covid-19 world.

Date: 2020-04
New Economics Papers: this item is included in nep-gen
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