This book looks at the distribution of income and wealth and the effects that this has on the macroeconomy, and vice versa. Is a more equal distribution of income beneficial or harmful for ...macroeconomic growth, and how does the distribution of wealth evolve in a market economy? Taking stock of results and methods developed in the context of the 1990s revival of growth theory, the authors focus on capital accumulation and long-run growth. They show how rigorous, optimization-based technical tools can be applied, beyond the representative-agent framework of analysis, to account for realistic market imperfections and for political-economic interactions.
The treatment is thorough, yet accessible to students and nonspecialist economists, and it offers specialist readers a wide-ranging and innovative treatment of an increasingly important research field. The book follows a single analytical thread through a series of different growth models, allowing readers to appreciate their structure and crucial assumptions. This is particularly useful at a time when the literature on income distribution and growth has developed quickly and in several different directions, becoming difficult to overview.
Non-linear Engel-curves for consumer goods cause continuous structural change. Goods are sequentially introduced starting out as a luxury with high income elasticity and ending up as a necessity with ...low income elasticity. Although this leads to rising and falling sectoral employment shares, the model exhibits a steady growth path along which the Kaldor facts are satisfied. Extending the basic model to the case of endogenous product innovations shows that complementarities between aggregate and sectoral growth may give rise to multiple equilibria.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
We introduce non-homothetic preferences into an innovation-based growth model and study how income and wealth inequality affect economic growth. We identify a (positive) price effect—where increasing ...inequality allows innovators to charge higher prices and (negative) market-size effects—with higher inequality implying smaller markets for new goods and/or a slower transition of new goods into mass markets. It turns out that price effects dominate market-size effects. We also show that a redistribution from the poor to the rich may be Pareto improving for low levels of inequality.
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BFBNIB, CEKLJ, INZLJ, IZUM, KILJ, NMLJ, NUK, ODKLJ, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
This paper presents a dynamic North-South general-equilibrium model where per capita incomes shape demand patterns across regions. Innovation takes place in a rich North while firms in a poor South ...imitate products manufactured in North. Allowing a role for per capita incomes in determining demand delivers a complete international product cycle as described by Vernon (1966), where the different stages of the product cycle are not only determined by supply-side factors but also by the distribution of income between North and South. We analyze how changes in the gap between North and South due to changes in Southern labor productivity, population size in South and inequality across regions affect the international product cycle. In line with presented stylized facts, we predict a negative correlation between adoption time and per capita incomes.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
Globalization increasingly involves less-developed countries (LDCs), i.e., economies which usually suffer from severe imperfections in their financial systems. Taking these imperfections seriously, ...we analyze how credit frictions affect the distributive impact of trade liberalizations. We find that free trade significantly widens income differences among
firm owners in LDCs: While wealthy entrepreneurs are better off, relatively poor business people lose. Intuitively, with integrated markets, profit margins shrink — which makes access to credit particularly difficult for the least-affluent agents. Richer entrepreneurs, by contrast, win because they can take advantage of new export opportunities. Our findings resonate well with a number of empirical regularities, in particular with the observation that some liberalizing LDCs have observed a surge in top-income shares.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPCLJ, UPUK
We explore the consequences of international trade in an economy that encompasses technology choice and an endogenous distribution of mark‐ups due to credit market frictions. We show that in such an ...environment a gradual opening of trade may—but not necessarily must—have a negative impact on productivity and overall output. The reason is that the procompetitive effects of trade reduce mark‐ups and hence make access to credit more difficult for smaller firms. As a result, smaller firms—while not driven out of the market—may be forced to switch to less productive technologies.
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BFBNIB, FZAB, GIS, IJS, KILJ, NLZOH, NUK, OILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
In this article, we discuss evidence on the evolution of top incomes in Switzerland, one of the richest countries in the world. Switzerland is a major industrialized economy with a strong financial ...sector. Furthermore, the absence of wars and the tax competition between its cantons kept the tax burden relatively low and stable over time. These features render the case of Switzerland interesting to understand how income and wealth inequality evolve in the absence of major shocks. We investigate how top incomes in Switzerland, which lies at the heart of Europe, have evolved compared to neighboring countries and the United States. We show that in Switzerland, similar to other countries, the share of labor income going to the top 1 percent has increased, implying that the recent rise in top incomes is not just attributable to more concentrated capital incomes. We also present new evidence on the income mobility of top earners in Switzerland, i.e. the question how long someone belonging to the top 1 percent stays within this group. Finally, we shed light on the concentration of wealth.
This paper examines how trade liberalization affects investment in R&D at the firm level. We provide a model with entrepreneurs that differ in their wealth endowments, causing them to rely on ...external funds to different extents. In the presence of capital market imperfections, this implies heterogeneous access to external financing such that poor entrepreneurs run smaller firms, are less likely to invest in R&D and are more likely to exit the market. Decreasing trade costs resulting from tariff reductions exacerbate these characteristics. Using firm‐level panel data on seven Latin American countries for 2006 and 2010, we find support for our theoretical predictions. While prior research emphasizes a positive impact of trade liberalization on firms’ productivity‐enhancing activities, we provide novel evidence showing that financial constraints can impair the effect on R&D efforts. These results suggest that imperfect capital markets can prevent welfare gains from trade liberalization to materialize.
Résumé
Innovation et commerce en présence de contraintes de crédit. Cet article étudie la façon dont la libéralisation des échanges a des répercussions sur l'investissement des entreprises en recherche et développement. Nous proposons un modèle dans lequel les entrepreneurs ne disposent pas des mêmes ressources financières et dépendent, à des degrés divers, de financements externes. En présence d'imperfections sur le marché des capitaux, cela suppose un accès hétérogène au financement externe : les entrepreneurs économiquement faibles à la tête de petites entreprises sont moins susceptibles d'investir en recherche et développement et sont davantage enclins à se retirer du marché. La diminution des coûts commerciaux consécutive à la baisse des tarifs douaniers accentue ces caractéristiques. Nous corroborons nos prévisions théoriques en utilisant des données de panel au niveau des entreprises de sept pays d'Amérique latine pour les années 2006 et 2010. Tandis que les recherches précédentes insistent sur les conséquences positives de la libéralisation des échanges sur les activités visant à améliorer la productivité des entreprises, nous proposons de nouveaux éléments montrant que l'effet sur les efforts en recherche et développement peut être altéré par les contraintes financières. Ces résultats suggèrent que l'imperfection des marchés de capitaux peut empêcher les gains de bien‐être favorisés par la libéralisation des échanges de se matérialiser.
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BFBNIB, FZAB, GIS, IJS, IZUM, KILJ, NLZOH, NUK, OILJ, PILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
Does information processing affect individual risk-taking behaviour? This article provides evidence that professional athletes suffer from a left-digit bias when dealing with signals about ...differences in performance. Using data from the highly competitive field of World Cup alpine skiing for the period of 1992–2014, we show that athletes misinterpret actual differences in race times by focusing on the leftmost digit, which results in increased risk-taking behaviour. For the estimation of causal effects, we exploit the fact that tiny time differences can be attributed to random shocks. We find no evidence that high-stakes situations or individual experience reduce the left-digit bias.
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BFBNIB, FZAB, GIS, IJS, INZLJ, IZUM, KILJ, NLZOH, NMLJ, NUK, OILJ, PILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
Studying the currency competition episode in Switzerland of the 19th century, I argue that modern economies need a single supplier of money to pursue stabilization policy. In small open economies ...with integrated capital markets, the uncertainty about the real exchange poses new risks to monetary policy which were only little discussed in the previous literature.
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