Income Inequality, Productivity, and International Trade

Wen-Tai Hsu, Lin Lu () and Pierre Picard
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Lin Lu: Department of Economics, Tsinghua University

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: This paper discusses the effect of income inequality on selection and aggregate productivity in a general equilibrium model with non-homothetic preferences. It shows the existence of a negative relationship between the number and quantity of products consumed by an income group and the earnings of other income groups. It also highlights the negative effect of a mean-preserving spread of income on aggregate productivity through the softening of ?rms’ selection. This effect is however mitigated in the presence of international trade. In a quantitative analysis, it is shown that an excessively large mean preserving spread of income may harm the rich as it raises ?rms’ markups on their purchases. This is contrary to the general belief that income inequality bene?ts the rich.

Date: 2018
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Related works:
Journal Article: Income inequality, productivity, and international trade (2023)
Working Paper: Income Inequality, Productivity, and International Trade (2021)
Working Paper: Income Inequality, Productivity, and International Trade (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:18-14

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