A Model of Income and Income Inequality in the Process of Growth

Manuel Montes
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Manuel Montes: School of Economics, University of the Philippines Diliman

No 198508, UP School of Economics Discussion Papers from University of the Philippines School of Economics

Abstract: This paper proposes a symbolic model that parameterizes some of the elements of Kurnets Inverted-U hypothesis. The model incorporates the following important factors in the development process: savings rate, the capital-output ration, the speed of labor absorption and the rate of growth of profits. Every inverted-U path requires a fixed vector of these parameters so that a change in any of these parameters displaces an economy to another inverted-U path. This result cautions against a mechanical understanding of the income-income inequality relationship in the development process. This paper identifies some important parameters of the inverted-U process that are called the investment coefficient, the trickle-down coefficient, and the concentration coefficient explains how this coefficients are derived from the more basic factors. The model therefore permits the analysis of the impact of different development policies on the inverted-U process. A short discussion of the empirical aspects of the model is also provided.

Date: 1985-07
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Published as UPSE Discussion Paper No. 1985-08, July 1985

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