The Dynamics of Inequality

Xavier Gabaix, Jean-Michel Lasry (), Pierre Louis Lions () and Benjamin Moll
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Jean-Michel Lasry: Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres
Pierre Louis Lions: Collège de France - Chaire Équations aux dérivées partielles et applications - CdF (institution) - Collège de France
Benjamin Moll: Princeton University

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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 tails of the income and wealth distributions at a given point in time, 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 parsimonious deviations from the basic model that can explain such changes, namely heterogeneity in mean growth rates or deviations from Gibrat's law. 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: Microecocomics; Market structure; Distribution; Macroeconomics; Consumption; Investment (search for similar items in EconPapers)
Date: 2015-07
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Related works:
Journal Article: The Dynamics of Inequality (2016)
Working Paper: The Dynamics of Inequality (2016)
Working Paper: The Dynamics of Inequality (2016)
Working Paper: The Dynamics of Inequality (2015)
Working Paper: The Dynamics of Inequality (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05313734

DOI: 10.3386/w21363

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