Dynamic Status Effects, Savings, and Income Inequality

58 Pages Posted: 29 Aug 2017

See all articles by Evangelos Dioikitopoulos

Evangelos Dioikitopoulos

King’s College London

Stephen J. Turnovsky

University of Washington - Institute for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Ronald Wendner

University of Graz - Department of Economics

Date Written: August 26, 2017

Abstract

This paper advances the hypothesis that the intensity of status preferences depends negatively on the average wealth of society (endogenous dynamic status effect), in accordance with empirical evidence. Our theory replicates the contradictory historical facts of an increasing saving rate along with declining returns to capital over time. By affecting the dynamics of the saving rate, the dynamic status effect raises inequality, thereby providing a behavioural mechanism for the observed diverse dynamics of income inequality across countries. In countries in which the dynamic status effect is strong (weak) inequality rises (declines) over time in response to a positive productivity shock.

Keywords: Status preferences, saving rate, growth, inequality

JEL Classification: D11, D31, O11

Suggested Citation

Dioikitopoulos, Evangelos and Turnovsky, Stephen J. and Wendner, Ronald, Dynamic Status Effects, Savings, and Income Inequality (August 26, 2017). Available at SSRN: https://ssrn.com/abstract=3026997 or http://dx.doi.org/10.2139/ssrn.3026997

Evangelos Dioikitopoulos

King’s College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

Stephen J. Turnovsky

University of Washington - Institute for Economic Research ( email )

Seattle, WA 98195
United States
206-685-8028 (Phone)
206-543-5955 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Ronald Wendner (Contact Author)

University of Graz - Department of Economics ( email )

Universitaetsstrasse 15
RESOWI - F4
Graz, A-8010
Austria
+43 316 380 3458 (Phone)
+43 316 380 693458 (Fax)

HOME PAGE: http://homepage.uni-graz.at/de/ronald.wendner/

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