Skip to main content Accessibility help
×
Home
Hostname: page-component-559fc8cf4f-s5ss2 Total loading time: 0.416 Render date: 2021-03-05T20:05:22.600Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": false, "newCiteModal": false, "newCitedByModal": true }

INFRASTRUCTURE AND INEQUALITY: INSIGHTS FROM INCORPORATING KEY ECONOMIC FACTS ABOUT HOUSEHOLD HETEROGENEITY

Published online by Cambridge University Press:  01 August 2016

David Klenert
Affiliation:
Mercator Research Institute on Global Commons and Climate Change, Technical University of Berlin, and Potsdam Institute for Climate Impact Research
Linus Mattauch
Affiliation:
Mercator Research Institute on Global Commons and Climate Change
Ottmar Edenhofer
Affiliation:
Mercator Research Institute on Global Commons and Climate Change, Potsdam Institute for Climate Impact Research, and Technical University of Berlin
Kai Lessmann
Affiliation:
Potsdam Institute for Climate Impact Research and Mercator Research Institute on Global Commons and Climate Change
Corresponding
E-mail address:

Abstract

We study the impacts of investment in public capital on equity and efficiency. Taking into account stylized facts on wealth accumulation, we model agent heterogeneity through differences in saving behavior, income source and time preference. We find that in the long run, public investment is Pareto-improving and that it reduces inequality in wealth, welfare, and income at the same time, if it is financed by a capital tax. Consumption tax financing is also Pareto-improving but distribution-neutral. Only for labor tax financing, a trade-off between equity and efficiency occurs. Additionally, we find that agents differ in their preferred tax rates.The results for capital and labor tax financing are valid for both, the case of decreasing and constant returns to accumulable factors.

Type
Articles
Copyright
Copyright © Cambridge University Press 2016 

Access options

Get access to the full version of this content by using one of the access options below.

Footnotes

We thank Max Franks, Beatriz Gaitan, Ulrike Kornek, Anselm Schultes and two anonymous reviewers for helpful comments. Furthermore, we thank the participants of the 2014 PET conference for insightful discussions.

References

Alesina, A. and Rodrik, D. (1994) Distributive politics and economic growth. Quarterly Journal of Economics 109 (2), 465490.CrossRefGoogle Scholar
Angyridis, C. (2015) Endogenous growth with public capital and progressive taxation. Macroeconomic Dynamics 19, 12201239.CrossRefGoogle Scholar
Attanasio, O.P. (1994) Personal saving in the United States. In Poterba, J.M. (ed.), International Comparisons of Household Saving, pp. 57124. Chicago: University of Chicago Press.Google Scholar
Barro, R.J. (1990) Government spending in a simple model of endogeneous growth. Journal of Political Economy 98 (S5), 103125.CrossRefGoogle Scholar
Becker, G.S. and Tomes, N. (1986) Human capital and the rise and fall of families. Journal of Labor Economics 4 (3), 139.CrossRefGoogle ScholarPubMed
Becker, R.A. (1980) On the long-run steady state in a simple dynamic model of equilibrium with heterogeneous households. Quarterly Journal of Economics 95 (2), 375382.CrossRefGoogle Scholar
Becker, R.A. (2006) Equilibrium dynamics with many agents. In Dana, R.-A., Le Van, C., Mitra, T. and Nishimura, K. (eds.), Handbook on Optimal Growth 1. Discrete Time, pp. 385442. Berlin: Springer.CrossRefGoogle Scholar
Browning, M. and Lusardi, A. (1996) Household saving: Micro theories and micro facts. Journal of Economic Literature 34 (4), 17971855.Google Scholar
Cagetti, M. and De Nardi, M. (2008) Wealth inequality: Data and models. Macroeconomic Dynamics 12 (S2), 285313.CrossRefGoogle Scholar
Calderón, C. and Servén, L. (2014a) Infrastructure and inequality. In Durlauf, S.N. and Blume, L.E. (eds.), New Palgrave Dictionary of Economics, Online Edition. Basingstoke, UK: Palgrave Macmillan. Accessed 1 December 2014.Google Scholar
Calderón, C. and Servén, L. (2014b) Infrastructure and growth. In Durlauf, S.N. and Blume, L.E. (eds.), New Palgrave Dictionary of Economics, Online Edition. Basingstoke, UK: Palgrave Macmillan. Accessed 1 December 2014.Google Scholar
Carroll, C.D. (2000a) Requiem for the representative consumer? Aggregate implications of microeconomic consumption behavior. American Economic Review 90 (2), 110115.CrossRefGoogle Scholar
Carroll, C.D. (2000b) Why do the rich save so much? In Slemrod, Joel B. (ed.), Does Atlas Shrug? Economic Consequences of Taxing the Rich, pp. 465484. Cambridge, MA: Harvard University Press.Google Scholar
Chatterjee, S. (1994) Transitional dynamics and the distribution of wealth in a neoclassical growth model. Journal of Public Economics 54, 97119.CrossRefGoogle Scholar
Chatterjee, S. and Ghosh, S. (2011) The dual nature of public goods and congestion: The role of fiscal policy revisited. Canadian Journal of Economics/Revue canadienne d'Economique 44 (4), 14711496.CrossRefGoogle Scholar
Chatterjee, S. and Turnovsky, S.J. (2012) Infrastructure and inequality. European Economic Review 56, 17301745.CrossRefGoogle Scholar
De Nardi, M. and Yang, F. (2014) Bequests and heterogeneity in retirement wealth. European Economic Review 72, 182196.CrossRefGoogle Scholar
Diamond, P. and Saez, E. (2011) The case for a progressive tax: From basic research to policy. Journal of Economic Perspectives 25 (4), 165190.CrossRefGoogle Scholar
Diaz-Gimenez, J., Glover, A., and Rios-Rull, J.-V. (2011) Facts on the distributions of earnings, income, and wealth in the United States: 2007 Update. Federal Reserve Bank of Minneapolis Quarterly Review 34 (1).Google Scholar
Dynan, K.E., Skinner, J., Zeldes, S.P., Journal, S., April, N., and Dynan, K.E. (2004) Do the rich save more? Journal of Political Economy 112 (2), 397444.CrossRefGoogle Scholar
Gale, W.G. and Scholz, J.K. (1994) Intergenerational transfers and the accumulation of wealth. Journal of Economic Perspectives 8 (4), 145160.CrossRefGoogle Scholar
García-Peñalosa, C. and Turnovsky, S.J. (2015) Income inequality, mobility, and the accumulation of capital. Macroeconomic Dynamics 19, 13321357.CrossRefGoogle Scholar
Glomm, G. and Ravikumar, B. (1994) Growth-inequality trade-offs in a model with Public Sector R&D. Canadian Journal of Economics/Revue canadienne d'Economique 27 (2), 484493.CrossRefGoogle Scholar
Green, L., Myerson, J., Lichtman, D., Rosen, S., and Fry, A. (1996) Temporal discounting in choice between delayed rewards: The role of age and income. Psychology and Aging 1, 7984.CrossRefGoogle Scholar
Guvenen, F. (2006) Reconciling conflicting evidence on the elasticity of intertemporal substitution: A macroeconomic perspective. Journal of Monetary Economics 53 (7), 14511472.CrossRefGoogle Scholar
Krusell, P. and Smith, A.A. (1998) Income and wealth heterogeneity in the macroeconomy. Journal of Political Economy 106 (5), 867896.CrossRefGoogle Scholar
Lawrance, E.C. (1991) Poverty and the rate of time preference : Evidence from panel data. Journal of Political Economy 99 (1), 5477.CrossRefGoogle Scholar
Mattauch, L., Edenhofer, O., Klenert, D., and Bénard, S. (2016) Distributional effects of public investment when wealth and classes are back. Metroeconomica 67 (3), 603629.CrossRefGoogle Scholar
Meijdam, L. and Verbon, H. a. a. (1997) Aging and public pensions in an overlapping generations model. Oxford Economic Papers 49, 2942.CrossRefGoogle Scholar
Michl, T.R. (2009) Capitalists, Workers, and Fiscal Policy. Cambridge, MA: Harvard University Press.Google Scholar
Pasinetti, L.L. (1962) Rate of profit and income distribution in relation to the rate of economic growth. Review of Economic Studies 29 (4), 267279.CrossRefGoogle Scholar
Quadrini, V. (1997) Understanding the U. S. distribution of wealth. Federal Reserve Bank of Minneapolis Quarterly Review 21 (2), 2236.Google Scholar
Ray, D. (1997) Development Economics. Princeton, NJ: Princeton University Press.Google Scholar
Romer, P.M. (1986) Increasing returns and long-run growth. Journal of Political Economy 94 (5), 10021037.CrossRefGoogle Scholar
Stiglitz, J.E. (1969) Distribution of income and wealth among individuals. Econometrica 37 (3), 382397.CrossRefGoogle Scholar
Stiglitz, J.E. (2015) New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals Part II: Equilibrium Wealth Distributions. NBER Working Paper Series 21190.Google Scholar
Turnovsky, S.J. (1997) Fiscal policy in a growing economy with public capital. Macroeconomic Dynamics 1, 615639.CrossRefGoogle Scholar
Wolff, E.N. (1998) Recent trends in the size distribution of household wealth. Journal of Economic Perspectives 12 (3), 131150.CrossRefGoogle Scholar
Wolff, E.N. (2010) Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze an Update to 2007. The Levy Economics Institute Working Paper Collection.Google Scholar

Altmetric attention score

Full text views

Full text views reflects PDF downloads, PDFs sent to Google Drive, Dropbox and Kindle and HTML full text views.

Total number of HTML views: 0
Total number of PDF views: 175 *
View data table for this chart

* Views captured on Cambridge Core between September 2016 - 5th March 2021. This data will be updated every 24 hours.

Send article to Kindle

To send this article to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

INFRASTRUCTURE AND INEQUALITY: INSIGHTS FROM INCORPORATING KEY ECONOMIC FACTS ABOUT HOUSEHOLD HETEROGENEITY
Available formats
×

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

INFRASTRUCTURE AND INEQUALITY: INSIGHTS FROM INCORPORATING KEY ECONOMIC FACTS ABOUT HOUSEHOLD HETEROGENEITY
Available formats
×

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

INFRASTRUCTURE AND INEQUALITY: INSIGHTS FROM INCORPORATING KEY ECONOMIC FACTS ABOUT HOUSEHOLD HETEROGENEITY
Available formats
×
×

Reply to: Submit a response


Your details


Conflicting interests

Do you have any conflicting interests? *