Income Distribution and the Demand Constraint

This paper argues that the interaction between inequality and the demand patterns for goods is a potential source of persistent inequality. Income distribution, in the presence of non-homothetic preferences, affects the demand for goods and, due to differences in factor intensities across sectors, i...

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Bibliographic Details
Published in:Journal of economic growth (Boston, Mass.) Mass.), 2001-06, Vol.6 (2), p.107-133
Main Author: Mani, Anandi
Format: Article
Language:English
Subjects:
Bequests
Capital investments
Capital markets
Consumption
Demand
Economic growth
Economic models
Economic theory
Economics
Higher education
Human capital
Income distribution
Income inequality
Income level
Investments
Labor demand
Labor supply
Low income groups
Middle class
Per capita
Poverty
Preferences
Prosperity
Skills
Steady state economies
Studies
Wages
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Summary:This paper argues that the interaction between inequality and the demand patterns for goods is a potential source of persistent inequality. Income distribution, in the presence of non-homothetic preferences, affects the demand for goods and, due to differences in factor intensities across sectors, it alters the return to factors of production and the initial distribution of income. Low inequality leads to high demand for medium skilled intensive goods, providing a bridge over which low skill dynasties may transition to the high-skilled sector in the long run. Under high inequality however, the initial lack of demand for medium skilled labor breaches this bridge from poverty to prosperity and inequality persists.
ISSN:1381-4338
1573-7020
DOI:10.1023/a:1011326523470