Working Papers

Present-Biased Envy, Inequality, and Growth
(with Kirill Borissov and Ronald Wendner), CESifo Working Paper No. 11090, 2024.

Abstract: We take into account that envy (relative consumption concerns) is more pronounced in the present than in the future. We consider a Ramsey-type model in which agents differ only in their initial capital endowments but are identical in their exogenous parameters. Agents' preferences exhibit present-biased envy: agents are naive and care about how their consumption levels compare to that of others in the current period. Our results suggest that present-biased envy affects both the level of inequality and the income level in an economy. First, present-biased envy generates the Matthew effect (the relatively rich get richer while the relatively poor get poorer), leading to a highly unequal long-run distribution of wealth. After some finite time, only those agents who were the wealthiest from the outset own the entire capital stock. All other agents are in the maximum borrowing state and spend their wages to repay the debt. Second, present-biased envy makes agents effectively more impatient, lowering the long-run capital stock and the aggregate income level compared to those in an economy without envy. 

Agents who are the wealthiest from the outset have positive consumption levels in all periods and eventually own the entire capital stock, while all other agents drive their consumption level to zero after some finite time and reach the maximum borrowing state

Heterogeneous Bequests and Social Inequalities
(with Kirill Borissov, Stefano Bosi and Thai Ha-Huy), HAL Working Paper hal-04236588, 2023.

Abstract: We study a growth model with two types of agents who are heterogeneous in their degree of family altruism. We prove that every equilibrium path of consumption, bequests and capital converges to a unique steady state, and study the effect of altruism on the properties of steady-state equilibrium. We show that aggregate income is positively related to both level of altruism and altruism heterogeneity. When altruism heterogeneity is low or moderate, income inequality follows an inverse U-shaped pattern relative to the level of altruism. These observations are consistent with the empirically relevant cross-country Kuznets curve linking different steady-state levels of income to steady-state levels of inequality. When altruism heterogeneity is high, income inequality strictly decreases with the level of altruism. Our results suggest that heterogeneous altruism is a possible mechanism linking economic growth and income inequality. 

Steady-state Gini index and capital stock: cross-country Kuznets curve. Countries with high levels of altruism would have high aggregate income and low inequality (A); countries with midrange levels of altruism would be middle-income and have high inequality (B); while countries with low levels of altruism would have low aggregate income and low inequality (C)

Work in Progress