Suen, Richard M. H. (2012): Time Preference and the Distributions of Wealth and Income.
This is the latest version of this item.
Download (464Kb) | Preview
This paper examines the connection between time preference heterogeneity and economic inequality in a deterministic environment. Specifically, 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.
|Item Type:||MPRA Paper|
|Original Title:||Time Preference and the Distributions of Wealth and Income|
|Keywords:||Inequality, Heterogeneity, Time Preference, Human Capital|
|Subjects:||D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources; Human Development; Income Distribution; Migration
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E21 - Consumption; Saving; Wealth
|Depositing User:||Richard M. H. Suen|
|Date Deposited:||10. Jul 2012 09:46|
|Last Modified:||11. Feb 2013 18:05|
Aiyagari, S.R., "Uninsured Idiosyncratic Risk and Aggregate Saving," Quarterly Journal of Economics 109, 1994, 659-684.
Bakshi, G.S., and Z. Chen, "The Spirit of Capitalism and Stock-Market Prices," American Economic Review 86, 1996, 133-157.
Becker, R.A., "On the Long-Run Steady State in a Simple Dynamic Model of Equilibrium with Heterogeneous Households," Quarterly Journal of Economics 95, 1980, 375-382.
Boileau, M., and R. Braeu, "The Spirit of Capitalism, Asset Returns, and the Business Cycle," Macroeconomic Dynamics 11, 2007, 214-230.
Boyd, J.H., "Recursive Utility and the Ramsey Problem," Journal of Economic Theory 50, 1990, 326-345.
Browning, M., L.P. Hansen, and J.J. Heckman, "Micro Data and General Equilibrium Models," in Handbook of Macroeconomics, Volume 1, edited by J.B. Taylor and M. Woodford. North Holland Press, 1999, 543-633.
Castañeda, A., J. Díaz-Giménez, and J. Ríos-Rull, "Accounting for the U.S. Earnings and Wealth Inequality," Journal of Political Economy 111, 2003, 818-857.
Cole, H.L., G.J. Mailath, and A. Postlewaite, "Social Norms, Savings Behavior, and Growth," Journal of Political Economy 100, 1992, 1092-1125.
Díaz-Giménez, J., A. Glover, and J. Ríos-Rull, "Facts on the Distributions of Earnings, Income, and Wealth in the United States: 2007 Update," Federal Reserve Bank of Minneapolis Quarterly Review 34, 2011, 2-31.
Erosa, A., and T. Koreshkova, "Progressive Taxation in a Dynastic Model of Human Capital," Journal of Monetary Economics 54, 2007, 667-685.
Espino, E., "On Ramsey's Conjecture: Efficient Allocations in the Neoclassical Growth Model with Private Information," Journal of Economic Theory 121, 2005, 192-213.
Frederick, S., G. Loewenstein, and T. O'Donoghue, "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature 40, 2002, 351-401.
Gong, L., and H. Zou, "Direct Preferences for Wealth, the Risk Premium Puzzle, Growth and Policy Effectiveness," Journal of Economic Dynamics & Control 26, 2002, 247-270.
Heathcote, J., K. Storesletten, and G.L. Violante, "Quantitative Macroeconomics with Heterogeneous Households," Annual Review of Economics 1, 2009, 319-354.
Heckman, J.J., "A Life-Cycle Model of Earnings, Learning and Consumption," Journal of Political Economy 84, 1976, S11-S44.
Heckman, J.J., L. Lochner, and C. Taber, "Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents," Review of Economic Dynamics 1, 1998, 1-58.
Hendricks, L. "How Important is Discount Rate Heterogeneity for Wealth Inequality?" Journal of Economic Dynamics & Control 31, 2007, 3042-3068.
Huggett, M., "The Risk-Free Rate in Heterogeneous-Agent Incomplete-Insurance Economies," Journal of Economic Dynamics and Control 17, 1993, 953-969.
Huggett, M., "Wealth Distribution in Life-Cycle Economies," Journal of Monetary Economics 38, 1996, 469-494.
Huggett, M., G. Ventura, and A. Yaron, "Sources of Lifetime Inequality," American Economic Review 101, 2011, 2923-2954.
Karnizova, L., "The Spirit of Capitalism and Expectation-Driven Business Cycles," Journal of Monetary Economics 57, 2010, 739-752.
Keane, M.P., and K.I. Wolpin, "The Career Decisions of Young Men," Journal of Political Economy 105, 1997, 473-522.
King, R.G., C.I. Plosser, and S.T. Rebelo, "Production, Growth and Business Cycles: I. The Basic Neoclassical Model," Journal of Monetary Economics 21, 1998, 195-232.
Krusell, P., and A.A. Smith, "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy 106, 1998, 867-896.
Kurz, M., "Optimal Economic Growth and Wealth Effects," International Economic Review 9, 1968, 348-357.
Lawrance, E.C., "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy 99, 1991, 54-77.
Lucas, R.E., "On the Mechanics of Economic Development," Journal of Monetary Economics 22, 1988, 3-42.
Luo, Y., and E.R. Young, "The Wealth Distribution and the Demand for Status," Macroeconomic Dynamics 13, 2009, 1-30.
Nakamoto, Y. "Jealousy and Underconsumption in a One-Sector Model with Wealth Preference," Journal of Economic Dynamics & Control 33, 2009, 2015-2029.
Pijoan-Mas, J., "Precautionary Savings or Working Longer Hours?" Review of Economic Dynamics 9, 2006, 326-352.
Sarte, P.G., "Progressive Taxation and Income Inequality in Dynamic Competitive Equilibrium," Journal of Public Economics 66, 1997, 145-171.
Smith, W.T., "Risk, the Spirit of Capitalism and Growth: The Implications of a Preference for Capital," Journal of Macroeconomics 21, 1999, 241-262.
Sorger, G., "On the Long-Run Distribution of Capital in the Ramsey Model," Journal of Economic Theory 105, 2002, 226-243.
Warner, J.T., and S. Pleeter, "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review 91, 2001, 33-53.
Zou, H., "'The Spirit of Capitalism' and Long-Run Growth," European Journal of Political Economy 10, 1994, 279-293.
Available Versions of this Item
Time Preference and the Distributions of Wealth and Income. (deposited 23. Oct 2010 14:10)
Time Preference and the Distributions of Wealth and Income. (deposited 20. Jan 2012 13:27)
- Time Preference and the Distributions of Wealth and Income. (deposited 10. Jul 2012 09:46) [Currently Displayed]
- Time Preference and the Distributions of Wealth and Income. (deposited 20. Jan 2012 13:27)