This article analyzes the impactof inequality on growth when consumers have hierarchic preferencesand technical progress is driven by innovations. With hierarchicpreferences, the poor consume predominantly basic goods, whereasthe rich consume also luxury goods. Inequality has an impacton growth because it affects the level and the dynamics of aninnovator's demand. It is shown that redistribution from veryrich to very poor consumers can be beneficial for growth. Ingeneral, the growth effect depends on the nature of redistribution.Due to a demand externality from R&D activities, multipleequilibria are possible.
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Zweimüller, J. Schumpeterian Entrepreneurs Meet Engel's Law: The Impact of Inequality on Innovation-Driven Growth. Journal of Economic Growth 5, 185–206 (2000). https://doi.org/10.1023/A:1009889321237
- hierarchic demand
- multiple equilibria