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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Income distribution and demand-induced innovation |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | Review of Economic Studies |
| Publisher | Wiley-Blackwell |
| Geographical Reach | international |
| ISSN | 0034-6527 |
| Volume | 73 |
| Number | 4 |
| Page Range | 941 - 960 |
| Date | 2006 |
| Abstract Text | We introduce non-homothetic preferences into an innovation-based growth model and study how income and wealth inequality affect economic growth. We identify a (positive) price effect -- where increasing inequality allows innovators to charge higher prices and (negative) market-size effects -- with higher inequality implying smaller markets for new goods and/or a slower transition of new goods into mass markets. It turns out that price effects dominate market-size effects. We also show that a redistribution from the poor to the rich may be Pareto improving for low levels of inequality. |
| Digital Object Identifier | 10.1111/j.1467-937X.2006.00403.x |
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| Keywords | Inequality, Growth, Demand composition, Price distortion |