Wealth Distribution in the Endogenous Growth Model with Idiosyncratic Investment Risk

Author Name HIRAGUCHI Ryoji (Meiji University)
Creation Date/NO. February 2018 18-E-009
Research Project Sustainable Growth and Macroeconomic Policy
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In this paper, we study the continuous time Uzawa-Lucas growth model with physical and human capital accumulation, and study the relationship between economic growth and wealth inequality. Human capital accumulation is deterministic, but investment in physical capital is subject to the idiosyncratic risk. There exists a unique balanced growth path, and the stationary wealth distribution along the path is double Pareto. We show that the increase in efficiency in human capital accumulation raises economic growth, and further equalizes wealth distribution. We also consider a case with linear tax on risky physical capital, and show that capital tax reduces the degree of wealth inequality.