Optimal control of inequality under uncertainty

Martin Forster, Davide La Torre and Peter Lambert

Discussion Papers from Department of Economics, University of York

Abstract: We consider the optimal control of inequality under uncertainty, with a particular focus on income inequality. For an economy experiencing economic growth and random shocks, we show how a simple loss and `bequest' function may be combined to guide the expected level of inequality towards a pre-defined target within a finite planning horizon. Closed form solutions show that, the stronger the shocks to the income distribution, the more aggressive is policy. We discuss the results in the context of recent applied and policy literature on social inequality, globalisation and economic instability.

Keywords: Globalisation; Inequality; Stochastic dynamic programming (search for similar items in EconPapers)
JEL-codes: C61 D31 D63 I38 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-upt
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Journal Article: Optimal control of inequality under uncertainty (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:12/07

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