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Titel
Endogenous growth, the distribution of wealth, and optimal policy under incomplete markets and idiosyncratic risk / Christiane Clemens, Maik Heinemann
VerfasserClemens, Christiane ; Heinemann, Maik
ErschienenBielefeld, Germany : Universität Bielefeld, Faculty of Business Administration and Economics, December 2012
Ausgabe
Elektronische Ressource
Umfang1 Online-Ressource (32 Seiten)
SerieWorking papers in economics and management ; No. 01-2012
URNurn:nbn:de:hbz:6:2-127404 
DOI10.4119/unibi/2554434 
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Endogenous growth, the distribution of wealth, and optimal policy under incomplete markets and idiosyncratic risk [0.29 mb]
Zusammenfassung

This paper combines the Aiyagari/Huggett-type standard incomplete markets model with the Arrow/Romer approach to growth to analyze feedback effects between growth and inequality, both endogenously determined in equilibrium. We derive conditions on existence/ nonexistence of balanced growth paths. Major results include that growth, inequality, and risk are positively related in our model, but we also identify a hump-shaped relationship between welfare and risk, indicating a tradeoff relationship between risk-pooling and growth in the determination of welfare. We discuss transitory dynamics and policy implications. A growth policy simultaneously reduces wealth inequality in the economy. The benefits and burdens of the underlying policy are unequally distributed, which raises the issue of politico-economic equilibria. We provide results on majority voting, finding that that the median voter prefers less than optimal subsidies on investment. Interestingly, the society might even vote against a policy providing full insurance against idiosyncratic risk, because welfare losses of lower growth more than offset welfare gains from lower risk.

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