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TIME PREFERENCE AND THE DISTRIBUTIONS OF WEALTH AND INCOME
Author(s) -
SUEN RICHARD M. H.
Publication year - 2014
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2012.00509.x
Subject(s) - economics , inequality , earnings , preference , distribution (mathematics) , human capital , income distribution , economic inequality , time preference , econometrics , microeconomics , mathematics , finance , economic growth , mathematical analysis
This paper examines the connection between time preference heterogeneity and economic inequality in a deterministic environment. Specifically, we extend the standard neoclassical growth model to allow for (1) heterogeneity in consumers' discount rates, (2) direct preferences for wealth, and (3) human capital formation. The second feature prevents the wealth distribution from collapsing into a degenerate distribution. The third feature generates a strong positive correlation between earnings and capital income across consumers. A calibrated version of the model is able to generate patterns of wealth and income inequality that are very similar to those observed in the United States . ( JEL D31, E21, O15 )