Wealth distribution and output fluctuations (Q654522)

The paper investigates the phenomenon of impact of wealth distribution on production output. The investigation instrument is a general two-sector neoclassical discret time growth model with endogeneous labor and heterogeneous agents. The economy produce an aggregate consumption good and a capital good (investment). Each good is produced with a standard constant return to scale technology represented via corresponding capital-labor production functions. A finite number of agents are represented via their instantaneous utility functions of two type depending on consumption indexes and leisure time respectively. These functions and the given discount factor define a consumer's intertemporal utility function. Also, their endowments of the consumption good and shares of the initial stock capital are given. These parameters, wage rate and the gross rental rate define the agent's intertemporal budget. The authors present the conditions of dynamic equilibrium (steady state) existence. The main results of the paper concern the stability of the equilibrium. It is shown that when the agents have homogeneous preferences of constant relative risk aversion type and individual wealth is Pareto distributed, a sufficiently large rise in the Gini index leads to increase in endogeneous fluctuation of output. In more general cases wealth inequality is still a destabilizing factor.