The Dynamics of Inequality

Xavier Gabaix, Benjamin Moll, Jean-Michel Lasry and Pierre-Louis Lions

No 11028, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The past forty years have seen a rapid rise in top income inequality in the United States. While there is a large number of existing theories of the Pareto tail of the long-run income distributions, almost none of these address the fast rise in top inequality observed in the data. We show that standard theories, which build on a random growth mechanism, generate transition dynamics that are an order of magnitude too slow relative to those observed in the data. We then suggest two parsimonious deviations from the canonical model that can explain such changes: "scale dependence" that may arise from changes in skill prices, and "type dependence," i.e. the presence of some "high-growth types." These deviations are consistent with theories in which the increase in top income inequality is driven by the rise of "superstar" entrepreneurs or managers.

Keywords: Inequality; Operator methods; Pareto distribution; Speed of transition; Superstars (search for similar items in EconPapers)
JEL-codes: D31 E24 (search for similar items in EconPapers)
Date: 2015-12
New Economics Papers: this item is included in nep-ent, nep-gro, nep-lma, nep-ltv and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Related works:
Working Paper: The Dynamics of Inequality (2016)
Working Paper: The Dynamics of Inequality (2015)
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