Time Preference and the Distribution of Wealth and Income

Richard M. H. Suen

No 2012-01, Working papers from University of Connecticut, Department of Economics

Abstract: This paper analyzes the connection between time preference heterogeneity and economic inequality. To achieve this, we extend the standard neoclassical growth model by introducing three additional features, namely (i) heterogeneity in consumers’ discount rates, (ii) direct preferences for wealth, and (iii) human capital formation. The second feature prevents the wealth distribution from collapsing into a degenerate distribution. The third feature generates a strong positive correlation between earnings and capital income across consumers. A calibrated version of the model is able to generate patterns of wealth and income inequality that are very similar to those observed in the United States.

Keywords: Inequality; Heterogeneity; Time Preference; Human Capital (search for similar items in EconPapers)
JEL-codes: D31 E21 O15 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2012-01
New Economics Papers: this item is included in nep-dge and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: TIME PREFERENCE AND THE DISTRIBUTIONS OF WEALTH AND INCOME (2014)
Working Paper: Time Preference and the Distributions of Wealth and Income (2010)
Working Paper: Time Preference and the Distributions of Wealth and Income (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:uct:uconnp:2012-01

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