Income Distribution and Demand-Induced Innovations
We introduce non-homothetic preferences into an innovation-based growth model and study how income and wealth inequality affect economic growth. We identify a (positive) price effect-where increasing inequality allows innovators to charge higher prices and (negative) market-size effects-with higher inequality implying smaller markets for new goods and/or a slower transition of new goods into mass markets. It turns out that price effects dominate market-size effects. We also show that a redistribution from the poor to the rich may be Pareto improving for low levels of inequality. Copyright 2006, Wiley-Blackwell.
Year of publication: |
2006
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Authors: | Foellmi, Reto ; Zweimuller, Josef |
Published in: |
Review of Economic Studies. - Oxford University Press. - Vol. 73.2006, 4, p. 941-960
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Publisher: |
Oxford University Press |
Saved in:
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