Growth and Distribution in an AK-Model with Endogenous Impatience

Abstract

This paper combines two strands of the literature on inequality and distribution issues: the classical approach, which insists on the division of society into classes characterized by different saving propensities, and the social conflict approach, which considers that inequality inflicts direct and indirect costs to economic development. An endogenousgrowth model is studied. We assume that each consumer's subjective discount factor is determined endogenously and depends on economic inequality through the following two channels. On the one hand, it is positively related to the individual consumer's relative wealth. On the other hand, it is negatively affected by a simple aggregate measure of social conflict. We show that, unlike models with exogenously given discount rates, steady state equilibria in our model is indeterminate and that the set of all equilibria is a continuum which can be parameterized by a simple index of income inequality. The growth rate is ambiguously related to the inequality index. However, under some reasonable assumptions, the growth rate dependence on this index has an inverted U-shaped form.

Inequality, Growth and Welfare: The Main Links

“…Finally, the level of mass violence resulting from high inequality is likely to change the individuals' attitude towards the future, leading them to discount it more heavily. Borissov & Lambrecht (2009) study the distribution and growth implications of this hypothesis.…”

A Division of Society into the Rich and the Poor: Some Approaches to Modeling

“…Модель эндогенного роста, предложенная в (Borissov, Lambrecht, 2009;Borissov, 2013), рационализирует гипотезу Дьюзенберри и исследует, к чему приводят общество социально обусловленные коэффициенты дисконтирования. В этой модели общий выпуск в экономике линейно зависит от суммарного запаса капитала, а потребительский сектор представлен несколькими агентами, которые одинаковы по всем своим параметрам и различаются только своими начальными запасами сбережений: кто-то изначально немного богаче, а кто-то беднее.…”

Ramsey equilibrium with liberal borrowing

“…Thus, income inequality can have a negative impact on economic growth. Borissov and Lambrecht (2009) propose to model this impact of inequality on growth by assuming that inequality increases the impatience of all economic agents. Making this assumption in our model would imply that the more liberal the borrowing constraints, the lower the steady-state capital stock, output and aggregate consumption.…”