Working Paper

A Comment on 'Wealth Inequality and Endogenous Growth' by Byoungchan Lee

Abstract: How does wealth inequality affect economic growth? Byoungchan Lee answers this question by developing a heterogeneous-agent model and augmenting it with endogenous firm innovation. The novel channel is that rising wealth concentration reduces aggregate demand, which gives firms a disincentive to spend on R&D and therefore leads to slower productivity growth. In this discussion, we first explain the difference in calibration strategy between Lee’s approach and the common approach in the literature, and then discuss its quantitative implications for the effect of rising inequality on aggregate consumption.

Keywords: heterogeneous-agent model; wealth inequality; aggregate consumption; Diversity;

JEL Classification: D31; D52; E21;

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2022-10-17

Number: 22-26