Working Paper

Minimum consumptions requirements: theoretical and quantitative implications for growth and distribution

Abstract: The authors study the impact of a minimum consumption requirement on the rate of economic growth and the evolution of wealth distribution. The requirement introduces a positive dependence between the intertemporal elasticity of substitution and household wealth. This dependence implies a transition phase during which the growth rate of per-capita quantities rise toward their steady-state values and the distributions of wealth, consumption, and permanent income become more unequal. The authors calibrate the minimum consumption requirement to match estimates available for a sample of Indian villagers and find that these transitional effects are quantitatively significant and depend importantly on the economy's steady-state growth rate. NOTE: This paper refers to figures not currently available with this electronic version. For a hard copy of the figures, call the Research Department's Publications Desk at 215-574-6428 and ask for Working Paper 97-15.

Keywords: Consumption (Economics); Wealth;

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 1997

Number: 97-15