Growth-inequality nexus in a simple capital accumulation model. Paulo Brito (ISEG - UECE).
Abstract: In this paper we address the joint distribution and growth processes by combining the inherent conservative property of distributions, highlighted by the mean-field game literature, and simple capital accumulation dynamics of benchmark economic growth theory. Given an initial unequal distribution of capital, and assuming a deterministic setting, we show that there are three main types of evolutions: asymptotic equality but no long run growth, asymptotic growth and a stationary distribution featuring inequality, or growth together with increasing inequality. The last type of evolution is Pareto optimal if capital accumulation depends linearly on the capital stock. Introducing a multiplicative random capital redistribution process, we show that we always get an increase in inequality although it can occur together with growth (if noise is relatively low) or within a non-growth context (when noise is very high).