Wealth inequality and aggregate demand | Zendy

Ederer Stefan | Zendy; Rehm Miriam | Zendy

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Wealth inequality and aggregate demand

Author(s) -

Ederer Stefan,

Rehm Miriam

Publication year - 2021

Publication title -

metroeconomica

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 1.256

H-Index - 29

eISSN - 1467-999X

pISSN - 0026-1386

DOI - 10.1111/meca.12326

Subject(s) - economics , inequality , redistribution (election) , redistribution of income and wealth , wage inequality , aggregate demand , labour economics , profit (economics) , wage , income distribution , distribution of wealth , wealth elasticity of demand , microeconomics , monetary economics , macroeconomics , unemployment , price elasticity of demand , monetary policy , mathematical analysis , mathematics , politics , political science , law

The paper investigates how including the distribution of wealth changes the demand effects of redistributing functional income. It develops a model with an endogenous wealth distribution and shows that the endogenous rise in wealth inequality resulting from a redistribution toward profits weakens the growth effects of this redistribution. Consequently, a wage‐led regime becomes more strongly wage‐led. A profit‐led regime on the other hand becomes less profit‐led and there may even be a regime switch––in this case the short‐run profit‐led economy becomes wage‐led in the long run due to the endogenous effects of wealth inequality. The paper thereby provides a possible explanation for the instability of demand regimes over time.

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