Economic Theory

, Volume 28, Issue 1, pp 25–49 | Cite as

Growth and income inequality: a canonical model

  • Cecilia García-Peñalosa
  • Stephen J. Turnovsky
Article

Summary.

We develop an endogenous growth model with elastic labor supply, in which agents differ in their initial endowments of physical capital. In this framework, the growth rate and the distribution of income are jointly determined. The key equilibrating variable is the equilibrium labor supply. It determines the rate of return to capital, which in turn affects both the rate of capital accumulation and the distribution of income across agents. We then examine the impact of various structural shocks on growth and distribution. We find that faster growth is associated with a more unequal, contemporaneous distribution of income, consistent with recent empirical findings.

Keywords and Phrases:

Endogenous growth Income inequality Elastic labor supply. 

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Copyright information

© Springer-Verlag Berlin/Heidelberg 2006

Authors and Affiliations

  • Cecilia García-Peñalosa
    • 1
  • Stephen J. Turnovsky
    • 2
  1. 1.GREQAM and CNRSMarseilleFRANCE
  2. 2.Department of EconomicsUniversity of WashingtonSeattleUSA

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