Understanding the economic dynamics behind growth-inequality relationships

Bandyopadhyay, Debasis and Tang, Xueli 2011, Understanding the economic dynamics behind growth-inequality relationships, Journal of macroeconomics, vol. 33, no. 1, pp. 14-32.

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Title Understanding the economic dynamics behind growth-inequality relationships
Author(s) Bandyopadhyay, Debasis
Tang, Xueli
Journal name Journal of macroeconomics
Volume number 33
Issue number 1
Start page 14
End page 32
Total pages 19
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2011-03
ISSN 0164-0704
1873-152X
Keyword(s) heterogeneous agents
externality
income inequality
growth
progressive redistribution
Summary In this paper, a dynamic general equilibrium (DGE) model of growth–inequality relationships, with missing credit markets, knowledge spillover and self-employed agents, is calibrated to New Zealand data. The model explains how two distinct policy shocks involving redistribution and immigration imply, subsequently, two completely opposite outcomes. Agents’ inability to borrow aggravates a negative macroeconomic effect of heterogeneity on growth. Redistribution mitigates that effect but creates microeconomic disincentives on saving and work-effort. Consequently, immigration shocks that perturb variance of efficiency induce a negative growth–inequality relationship, while redistribution shocks, in New Zealand’s case, produce larger fluctuations in incentives than in macro benefits, implying a positive growth–inequality relationship.
Language eng
Field of Research 140102 Macroeconomic Theory
Socio Economic Objective 910106 Income Distribution
HERDC Research category C1 Refereed article in a scholarly journal
HERDC collection year 2011
Copyright notice ©2010, Elsevier Inc.
Persistent URL http://hdl.handle.net/10536/DRO/DU:30034374

Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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