This paper analyzes the role of income distribution in macroeconomic analysis. The galorzeira model is the first macroeconomic model to explore the role of heterogeneity in the determination of macroeconomic behavior. It is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital, the initial distribution of wealth affects aggregate output and investment both in the short and in the long run, as there are multiple steady states. Classical economists such as adam smith, thomas malthus, and david ricardo were mainly concerned with factor income distribution, that is, the distribution of income between the main factors of production, land, labour and capital. Income distribution and macroeconomics, mpra paper 51644, university library of munich, germany, revised 01 sep 1989.
Uses utipunido pay inequality data to improve on the ds data set of household income inequlaity. Income distribution and macroeconomics oded galor and joseph zeira galor zeira inequality and growth 1 57. Galor and zeira 1993 argue that income distribution plays an important role in the determination of aggregate economic activity and economic growth. Macroeconomics, the labor market, and income distribution in. Income is dened as market income including capital gains excludes all government transfers. This course offers an introduction to central themes in the field of economics of inequality. While many economists often start working on a topic at the same time, much of the credit for pioneering this line of enquiry must go to oded galor and joseph zeira. The relationship between aggregate output and the distribution of income is an important topic in macroeconomics galor 2011. Since 2000, brazil has had relatively weak economic growth. Goldberger professor of economics at brown university.
Theory and subsequent empirical evidence have demonstrated that income distribution has a significant impact on the growth process. Macroeconomics, income distribution, and poverty rebecca m. Oded galor born 1953 is an israeli economist who is currently herbert h. Income distribution and macroeconomics in colombia javier a. Download it once and read it on your kindle device, pc, phones or tablets. Deininger, klaus and squire, lyn 1996 a new data set measuring income inequality. Income distribution and economics to avoid these overlaps which are essentially the proof that income distribution issues the final part of the introduction, section 6, provides a guide to the contents of the. Economic growth with income and wealth distribution. Use features like bookmarks, note taking and highlighting while reading income distribution in. It is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital, the initial distribution of. Syllabus of ec6102 advanced macroeconomic theory we discuss some basic skills of constructing and solving macroeconomic models, including theoretical results and computational methods. He has published more than 100 academic articles and 15 books. The evolution of financial inclusion after the world economic crisis in 2008 has been documented to contribute significantly to reduction in poverty and income inequality throughout the world.
Effects of income inequality on economic growth vox, cepr. Moreover, under imperfect credit markets, galor and zeira 1993 argue that income and wealth distribution determine the allocation of human capital. We will deal with both issues of how inequality impacts on the functioning of the economy, as well as with issues of why inequality arises, and we will do so using theoretical as well as. Use features like bookmarks, note taking and highlighting while reading income distribution in macroeconomic models.
Galor and zeira 1988, 1993, has underlined the role of heterogeneity in the determination of macroeconomic activity. In accordance with empirical evidence concerning the conelation between income distribution and output, an economy that is characterized by a relatively equal distribution of wealth is likely to be wealthier in the long run. Inequality, human capital formation and the process of. A metamorphosis in these perspectives has taken place in the past two decades. Inequality and economic development, edward elgar, cheltenham, uk, 2009. This paper analyzes the role of wealth distribution in macroeconomics through investment in human capital. Income distribution and macroeconomics, working papers 2012, brown university, department of economics. Jones stanford university and national bureau of economic research jihee kim korea advanced institute of science and technology top income inequality rose sharply in the united states over the last 40 years but increased only slightly in france and japan. The range of topics includes business cycle research, economic growth, and monetary economics, as well as topics drawn from the substantial areas of overlap between macroeconomics and international economics, labor economics, finance, development economics.
We emphasize some basic intuition of macroeconomics such as mechanisms amplifying the economic. Oded galor and joseph zeira mpra paper from university library of munich, germany. Income distribution and inequality lse research online. It has advanced a novel viewpoint that heterogeneity, and thus income distribution, plays an important role in the determination of aggregate economic activity and economic growth in the short run as well as in the long run. This paper analyzes the role of wealth distribution. A further potential concern with the instruments is that trade affects a countrys income distribution beyond its effect on gdp per capita a similar concern is discussed in acemoglu et al. Occupational choice and the process of development, journal of political economy, 1993, 101. Income distribution and economics to avoid these overlaps which are essentially the proof that income distribution issues the final part of the introduction, section 6, provides a. May 29, 2015 applied economics galor zeira model of the inequality in education and income. Child labor and the education of a society macroeconomic. Distributional macroeconomics princeton university.
The range of topics includes business cycle research, economic growth, and monetary economics, as well as topics drawn from the substantial areas of overlap between macroeconomics and international economics, labor economics, finance, development economics, political. Galor has contributed to the understanding of process of development over the entire course of human history and the role of deeprooted factors in the transition from. This paper shows that if we add a second assumption, that technology is nonconvex, the inherited distribution of wealth affects the economy not only. Editor, journal of economic growth, 1995 codirector of the nber research group on income distribution and macroeconomics, 1995 member of the editorial board, economics and human biology, 2002. Nevertheless, the labor market and income distribution have been improving consistently. Income and its distribution have always been a central concern of economic theory and economic policy. The galor zeira model individuals member of generation t.
The study demonstrates that the longrun equilibrium depends on the initial distribution of income. This paper reconsiders the significance of income distribution in macroeconomics, a topic that has attracted the attention of economists since the 1990s. Income distribution and macroeconomics oded galor brown university and joseph zeira the hebrew university of jerusalem first version received january 1991. Pdf financial inclusion, poverty and income inequality.
Ghatak and jiang 2002, a simple model of inequality, occupational choice and development 69. This paper investigates the impacts of macroeconomic activity and policy on the poverty population. This modern approach was pioneered by galor and zeira res, 1993. Among those who have explored various mechanisms to explain the negative aspects of inequality, galor and zeira 1993 theoretically argued that, in developed economies with imperfect capital. Persistent inequality, corruption, and factor productivity in. Find materials for this course in the pages linked along the left. Subjects architecture and design arts asian and pacific studies business and economics chemistry classical and ancient near eastern studies computer sciences cultural. The literature on the relationship between income distribution and economic development, which follows the capital market imperfection approach, shows that income inequality affects longrun economic performance provided that the production technology of human capital or final output is nonconvex. A schumpeterian model of top income inequality charles i. We argue that the two phenomena are related on the basis. In this sense there are several theories of income distribution corresponding to.
Moreover, under imperfect credit markets, galor and zeira 1993 argue that income and wealth distribution determine the. Inequalities at the bottom of the us wage distribution have closely followed the evolution of thee minimum wage. In accordance with empirical evidence concerning the conelation between income distribution and output, an economy that is characterized by a relatively equal distribution of. Goldberger professor of economics, brown university professional appointments. Financial dependence and growth, quarterly journal of economics. Readings in the theory of economic development, blackwell, oxford, 2000. Income distribution in macroeconomic models kindle edition by bertola, giuseppe, foellmi, reto, zweimuller, josef. In contrast to the representative agent approach that dominated the field of macroeconomics till the early 1990s and argued that heterogeneity has no impact on macroeconomic activity, the model demonstrates that in the presence of capital markets. Reprinted in readings in the theory of economic development, d. The functional distribution of income is an integral part of the economic analysis of relative prices, output and employment. We relate the dynamics of aggregate economic variables withthe crosssectionof disaggregate income to determine the transmission and.