Economic Growth and Wealth Inequality: The Role of Differential Fertility

69 Pages Posted: 6 Sep 2017 Last revised: 14 Oct 2018

See all articles by Alessandro Di Nola

Alessandro Di Nola

University of Konstanz - Department of Economics

Alessandro Ferrari

Bank of Italy - Economic Outlook and Monetary Policy Directorate

Date Written: June 12, 2018

Abstract

This paper provides a quantitative assessment of the impact of economic growth on wealth inequality. Using both aggregate and micro-level data, we document that a worsening of the economic outlook determines a fall in expected children income. As a consequence parents reduce fertility and increase the amount of intergenerational transfers. Wealthier households, who have ceteris paribus more offsprings, adjust their fertility decision by a greater magnitude. Therefore a persistent fall in economic growth causes an increase in wealth inequality in the subsequent generation. In order to rationalize this empirical evidence we solve the Barro- Becker model of fertility in a setup with aggregate and idiosyncratic shocks to labour income, and incomplete markets à la Bewley. We found that the slowdown in economic growth observed in the US between the 1950s and the 1970s can account for almost 40 per cent of the increase in wealth concentration since 1980s.

Keywords: Wealth Inequality, Fertility, Intergenerational Transfers, Hetereogeneous Agents

JEL Classification: D19, D31, D52, E71, J11, J13

Suggested Citation

Di Nola, Alessandro and Ferrari, Alessandro, Economic Growth and Wealth Inequality: The Role of Differential Fertility (June 12, 2018). Available at SSRN: https://ssrn.com/abstract=3030725 or http://dx.doi.org/10.2139/ssrn.3030725

Alessandro Di Nola

University of Konstanz - Department of Economics ( email )

Universitätsstraße 10
Konstanz, 78457
Germany

HOME PAGE: http://www.sites.google.com/site/alessandrodinolaphd/

Alessandro Ferrari (Contact Author)

Bank of Italy - Economic Outlook and Monetary Policy Directorate ( email )

Via Nazionale 91
Rome, 00184
Italy
06 4792 2973 (Phone)

HOME PAGE: http://sites.google.com/site/alessandroferrariecon/home

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