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DYNAMIC STATUS EFFECTS,SAVINGS, AND INCOME INEQUALITY |
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| Authors: | Evangelos V Dioikitopoulos Stephen J Turnovsky Ronald Wendner |
| Institution: | 1. King's College London, U.K.
Athens University of Economics and Business, Greece;2. University of Washington, U.S.A.;3. University of Graz, Austria We have benefited from comments and suggestions from M. Angeletos, A. Clark, R. Easterlin, R. Frank, S. Michalopoulos, K. Mino, O. Johansson-Stenman, A. Oswald, and H. Takeo. The constructive suggestions of three referees and an associate editor are gratefully acknowledged. We are also pleased to acknowledge helpful feedback from participants of the Macroeconomics Workshop 2017 at Osaka University, of the Economic Theory Workshop at Gakuin Aoyama University, Tokyo, of the PET 2017 conference in Paris, of the CRETE 2015 conference in Naxos, and participants of the research seminar series of the Kwansei Gakuin University, of the Tokyo Institute of Technology, and of Hiroshima University. Part of the project was conducted during Ronald Wendner's visit at Harvard University, whose hospitality is gratefully acknowledged. The usual disclaimer applies. |
| Abstract: | This article 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 behavioral 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. |
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