Human Capital and Income Inequality in a Monetary Schumpeterian Growth Model
Zhijie Zheng (),
Chien-Yu Huang and
MPRA Paper from University Library of Munich, Germany
This paper investigates the effects of monetary policy on income inequality in a Schumpeterian growth model with endogenous human capital accumulation and household heterogeneity. The source of heterogeneity arises from both unequal distributions of (tangible) wealth and (intangible) human capital. We ﬁnd that inﬂation unambiguously lowers economic growth rate, whereas its impact on the income inequality is quite diverse, depending on the relative dispersions of human capital and wealth, and the response of the relative interestwage income share to inﬂation. Inﬂation may increase income inequality when the dispersion of human capital dominates (is dominated by) that of wealth, and the relative interest-wage income share is decreasing (increasing) in inﬂation rate. One interesting scenario in our analysis is that the model can generate a non-monotonic U-shaped relationship between income inequality and inﬂation. Moreover, our quantitative example shows that this U-shaped relationship is likely to occur in a reasonable range of parameter conﬁguration and the threshold level of inﬂation is consistent with the current empirical ﬁndings using the U.S. data.
Keywords: Income Inequality; Inﬂation; Endogenous economic growth; Human capital. (search for similar items in EconPapers)
JEL-codes: D31 E41 O30 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-gro and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:101912
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