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The dynamics of inequality

Gabaix, Xavier, Lasry, Jean Michel, Lions, Pierre Louis and Moll, Benjamin (2016) The dynamics of inequality. Econometrica, 84 (6). 2071 - 2111. ISSN 0012-9682

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Identification Number: 10.3982/ECTA13569

Abstract

The past forty years have seen a rapid rise in top income inequality in the United States. While there is a large number of existing theories of the Pareto tail of the long-run income distributions, almost none of these address the fast rise in top inequality observed in the data. We show that standard theories, which build on a random growth mechanism, generate transition dynamics that are too slow relative to those observed in the data. We then suggest two parsimonious deviations from the canonical model that can explain such changes: “scale dependence” that may arise from changes in skill prices, and “type dependence,” that is, the presence of some “high-growth types.” These deviations are consistent with theories in which the increase in top income inequality is driven by the rise of “superstar” entrepreneurs or managers.

Item Type: Article
Official URL: https://www.econometricsociety.org/publications/ec...
Additional Information: © 206 The Econometric Society
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
Date Deposited: 06 Nov 2019 13:42
Last Modified: 22 Jul 2020 23:32
URI: http://eprints.lse.ac.uk/id/eprint/102392

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