TY  - GEN
AB  - This paper combines the Aiyagari/Huggett-type standard incomplete markets model with the Arrow/Romer approach to growth to analyze feedback effects between growth and inequality, both endogenously determined in equilibrium. We derive conditions on existence/ nonexistence of balanced growth paths. Major results include that growth, inequality, and risk are positively related in our model, but we also identify a hump-shaped relationship between welfare and risk, indicating a tradeoff relationship between risk-pooling and growth in the determination of welfare. We discuss transitory dynamics and policy implications. A growth policy simultaneously reduces wealth inequality in the economy. The benefits and burdens of the underlying policy are unequally distributed, which raises the issue of politico-economic equilibria. We provide results on majority voting, finding that that the median voter prefers less than optimal subsidies on investment. Interestingly, the society might even vote against a policy providing full insurance against idiosyncratic risk, because welfare losses of lower growth more than offset welfare gains from lower risk.
DA  - 2012
DO  - 10.4119/unibi/2554434
KW  - endogenous growth
KW  - idiosyncratic risk
KW  - borrowing constraints
KW  - heterogeneous agents
KW  - wealth distribution
KW  - optimal policy
LA  - eng
PY  - 2012
SN  - 2196-2723
SP  - 32-
TI  - Endogenous Growth, the Distribution of Wealth, and Optimal Policy under Incomplete Markets and Idiosyncratic Risk
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-25544341
Y2  - 2024-11-25T07:01:28
ER  -