Publication
Economic growth and income inequality: the role of fiscal and monetary policy
| Summary: | In this paper, we develop a monetary endogenous growth model with heterogeneity of initial asset holdings and examine the relationships among fscal and monetary policy, economic growth, and wealth and income inequality. We incorporate a fexible labor supply and money-in-the-utility approach to accomplish this. The origin of income inequality is heterogeneous endowments of initial assets, and this heterogeneity impacts both economic growth and income inequality through labor supply and real money holdings. In this model, the government-debt-to-private-capital ratio, government-debt-to-real-money-balance ratio, and average leisure determine the rate of asset return and the wage rate, which afect the economic growth rate and distribution across agents. By conducting a numerical simulation, we fnd a negative relationship between the economic growth rate and income inequality in the long term with strict fscal discipline. Moreover, with the increasing money growth rate, we see a positive relationship between the economic growth rate and income inequality in the long term. |
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| Main Authors: | Miyashita, Daisuke |
| Subject: | Economic growth Fiscal and monetary policy Income inequality Labor-leisure choice |
| Year: | 2025 |
| Country: | Portugal |
| Document type: | article |
| Access type: | restricted access |
| Associated institution: | Universidade de Lisboa |
| Language: | English |
| Origin: | Repositório da Universidade de Lisboa |
| Summary: | In this paper, we develop a monetary endogenous growth model with heterogeneity of initial asset holdings and examine the relationships among fscal and monetary policy, economic growth, and wealth and income inequality. We incorporate a fexible labor supply and money-in-the-utility approach to accomplish this. The origin of income inequality is heterogeneous endowments of initial assets, and this heterogeneity impacts both economic growth and income inequality through labor supply and real money holdings. In this model, the government-debt-to-private-capital ratio, government-debt-to-real-money-balance ratio, and average leisure determine the rate of asset return and the wage rate, which afect the economic growth rate and distribution across agents. By conducting a numerical simulation, we fnd a negative relationship between the economic growth rate and income inequality in the long term with strict fscal discipline. Moreover, with the increasing money growth rate, we see a positive relationship between the economic growth rate and income inequality in the long term. |
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