Economic Growth and Wealth Inequality : The Role of Differential Fertility

This paper provides a quantitative assessment of the impact of economic growth on wealthinequality. Using both aggregate and micro-level data, we document that a worsening of theeconomic outlook determines a fall in expected children income. As a consequence parentsreduce fertility and increase the amount of intergenerational transfers. Wealthier households,who have ceteris paribus more offsprings, adjust their fertility decision by a greater magnitude.Therefore a persistent fall in economic growth causes an increase in wealth inequality inthe subsequent generation. In order to rationalize this empirical evidence we solve the Barro-Becker model of fertility in a setup with aggregate and idiosyncratic shocks to labour income,and incomplete markets à la Bewley. We found that the slowdown in economic growth observedin the US between the 1950s and the 1970s can account for almost 40 per cent of theincrease in wealth concentration since 1980s