Adjustment and Income Distribution: A Counterfactual Analysis
François Bourguignon,
William Branson and
Jaime de Melo
No 2943, NBER Working Papers from National Bureau of Economic Research, Inc
Abstract:
This paper presents a structural macro simulation model to quantify the effects of alternative stabilization packages on the distribution of income and wealth. The model combines the explicit microeconomic optimizing behavior characteristic of computable general equilibrium models with asset portfolio behavior of macroeconomic models in Tobin's tradition. In this model there are four main mechanisms by which policy changes affect the distribution of income and wealth. First changes in factor rewards affect directly household income distribution. Second, household real incomes are affected by changes in their respective cost of living indexes. Third, household real incomes are affected by changes in real returns on financial assets since household incomes include income from financial holdings. Fourth, household wealth distribution is affected by capital gains and losses. Simulations with' the model are carried out for a representative economy subject to the interest rate and terms-of-trade shocks of the early 1980s. The simulations suggest a large adverse impact on the distribution of income of a sharp contractionary package. The resulting distributional shifts are likely to endanger the sustainability of the package even though the distribution of income becomes more equal when normal policies are resumed. By contrast, the targeted expenditure cut programs advocated by the critics of contractionary packages result in a much less unequal distribution of income during the adjustment package, even though the distributional improvements of the targeted package are mostly reversed in the post-adjustment period. The simulations support the view that stabilization packages which do not have specific components targeted towards the poor will have a noticeable adverse effect on the distribution of income, which is likely to result in some form of permanent damage for those below the poverty line.
Date: 1989-04
Note: ITI IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)
Published as Bourguignon, F., W. H. Branson and J. De Melo. "Adjustment And Income Distribution: A Micro-Macro Model For Counter-Factual Analysis," Journal of Development Economics, 1992, v38(1), 17-40.
Downloads: (external link)
http://www.nber.org/papers/w2943.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:2943
Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w2943
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().