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Income Distribution and Demand-Induced Innovations


Reto Foellmi


University of St. Gallen - Swiss Institute for International Economics and Applied Economic Research

Josef Zweimüller


University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

November 2004

IEW Working Paper No. 212

Abstract:     
We utilize Schmookler's (1966) concept of demand-induced invention to study the role of income inequality in an endogenous growth model. As rich consumers can satisfy more wants than poor consumers, both prices and market sizes for new products, as well as their evolution over time, are determined by the income distribution. We show how a change in the distribution of income affects the incentive to innovate and hence long-run growth. In general, less inequality tends to discourage the incentive to innovate, but this depends on the nature of the redistribution.

Number of Pages in PDF File: 48

Keywords: Inequality, growth, demand composition, price distortion

JEL Classification: O15, O31, D30, D40, L16

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Date posted: December 3, 2004  

Suggested Citation

Foellmi, Reto and Zweimüller, Josef, Income Distribution and Demand-Induced Innovations (November 2004). IEW Working Paper No. 212. Available at SSRN: http://ssrn.com/abstract=625101 or http://dx.doi.org/10.2139/ssrn.625101

Contact Information

Reto Foellmi (Contact Author)
University of Saint Gallen - Swiss Institute for International Economics and Applied Economic Research ( email )
Bodanstrasse 8
St. Gallen, 9000
Switzerland
+41-71-224-2269 (Phone)
+41-71-224-2298 (Fax)
Josef Zweimueller
University of Zurich - Department of Economics ( email )
Zuerich, 8006
Switzerland
+411 634 3724 (Phone)
+411 634 4907 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
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