Wealth inequality and aggregate demand

Stefan Ederer, Miriam Rehm

The paper investigates how including the distribution of wealth changes the demand effects of redistributing functional income. It develops a model with an endogenous wealth distribution and shows that the endogenous rise in wealth inequality resulting from a redistribution towards profits weakens the growth effects of this redistribution. Consequently, a wage-led regime becomes more strongly wage-led. A profit-led regime on the other hand becomes less profit-led and there may even be a regime switch - in this case the short-run profit-led economy becomes wage-led in the long run due to the endogenous effects of wealth inequality. The paper thereby provides a possible explanation for the instability of demand regimes over time.

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Year of publication:	[2019]
Authors:	Ederer, Stefan ; Rehm, Miriam
Publisher:	Duisburg, Germany : ifso, Institute for Socio-Economics, University of Duisburg-Essen
Subject:	Wealth \| Distribution \| Aggregate Demand \| Vermögensverteilung \| Wealth distribution \| Gesamtwirtschaftliche Nachfrage \| Aggregate demand \| Theorie \| Theory \| Einkommensverteilung \| Income distribution \| Vermögen \| Privater Konsum \| Private consumption