Publication Type
Working Paper
Version
publishedVersion
Publication Date
7-2018
Abstract
This paper discusses the effect of income inequality on selection and aggregate productivity in a general equilibrium model with non-homothetic preferences. It shows the existence of a negative relationship between the number and quantity of products consumed by an income group and the earnings of other income groups. It also highlights the negative effect of a mean-preserving spread of income on aggregate productivity through the softening of firms’ selection. This effect is however mitigated in the presence of international trade. In a quantitative analysis, it is shown that an excessively large mean-preserving spread of income may harm the rich as it raises firms’ markups on their purchases. This is contrary to the general belief that income inequality benefits the rich.
Discipline
Income Distribution | International Economics
Research Areas
Applied Microeconomics
First Page
1
Last Page
46
Publisher
SMU Economics and Statistics Working Paper Series, No. 13-2018
City or Country
Singapore
Citation
HSU, Wen-Tai; LU, Lin; and PICARD, Pierre.
Income inequality, productivity, and international trade. (2018). 1-46.
Available at: https://ink.library.smu.edu.sg/soe_research/2188
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.