Fiscal policy and inequality in a model with endogenous positional concerns

DOI10.1016/J.JMATECO.2022.102765MaRDI QIDQ2101433zbMATH OpenOpenAlexFDO

Authors Kirill Borissov, Nigar Hashimzade

Publication date 6 December 2022

Published in Journal of Mathematical Economics (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/2107.00410

zbMATH Keywords

fiscal policyinequalitypositional preferencesrelative consumption

Mathematics Subject Classification ID

Welfare economics (91B15) Macroeconomic theory (monetary models, models of taxation) (91B64)

Abstract: We investigate the dynamics of wealth inequality in an economy where households have positional preferences, with the strength of the positional concern determined endogenously by inequality of wealth distribution in the society. We demonstrate that in the long run such an economy converges to a unique egalitarian steady-state equilibrium, with all households holding equal positive wealth, when the initial inequality is sufficiently low. Otherwise, the steady state is characterised by polarisation of households into rich, who own all the wealth, and poor, whose wealth is zero. A fiscal policy with government consumption funded by taxes on labour income and wealth can move the economy from any initial state towards an egalitarian equilibrium with a higher aggregate wealth.

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Cites work

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Cited in

(6)

• Endogenous inequality
• The distribution of wealth and fiscal policy in economies with finitely lived agents
• INEQUALITY AVERSION AND THE OPTIMAL COMPOSITION OF GOVERNMENT EXPENDITURE
• FISCAL CONSOLIDATION PROGRAMS AND INCOME INEQUALITY
• Positional preferences and efficiency in a dynamic economy
• Inequality and growth in a model with borrowing constraints

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