Topics on the Dynamics of the Income and Wealth Distribution

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9309514 Rios-Rull The principal investigator will study a series of interrelated projects, all of them sharing the feature of studying the determinants and the dynamics of the income and wealth distribution. The projects can be divided into two main groups differing in the mechanism in place for the redistribution of income and wealth. The first group of projects considers uninsurable employment risks, while the second group allows for redistribution through tax policies that are endogenously generated by the interaction of agents. The first project tries to answer the question of whether the key properties of the income distribution in postwar U.S. can be accounted for by the movements associated with fluctuations in economic activity. Both employment and the factor shares of output present strong cyclical behavior. The models used are hard to work out and this study will solve a simpler approximated economy. Associated with the problem just described is the question of what can account for the large values of the Gini Indices in the distribution of wealth. This issue of understanding the origins of the large wealth and income inequality is addressed in a second project that tries to determine the properties of the process for uninsurable labor income risk that are required to obtain wealth distributions like the one observed. This labor income process will be compared to those found in empirical studies. The second main part of this research deals with general issues of economic policy determination and its relation to the distribution of people over key variables, like wealth. It builds on a dynamic notion of political equilibrium. The specific projects involved are, first, to investigate the success of the redistributional model, in accounting for empirical findings that relate growth performance and the distribution of wealth. The second project explores the changes in the income and wealth distribution since World War II. It aims to find out how much of those changes can be accounted for purely on redistributional grounds. ***