The Dynamics of Pareto Distributed Wealth in a Small Open Economy

48 Pages Posted: 11 May 2021

See all articles by Matthias Birkner

Matthias Birkner

Johannes Gutenberg University Mainz

Niklas Scheuer

Johannes Gutenberg University Mainz

Klaus Wälde

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management

Date Written: 2021

Abstract

We study a small open economy displaying Pareto-distributed wealth resulting from random death. The government runs a distribution scheme on inheritance. We present the mathematical background that allows to study the dynamics of means. We end up with ordinary differential equations for the mean of age and of individual and government wealth. We also study distributional dynamics analytically. Starting from any distribution of age and wealth, the aggregate distribution converges, both on a transition path towards a steady state and on a transition path towards balanced growth, to an exponential distribution of age and a Pareto-distribution of wealth. The findings are illustrated for different distribution schemes.

JEL Classification: C610, D310, E210

Suggested Citation

Birkner, Matthias and Scheuer, Niklas and Wälde, Klaus, The Dynamics of Pareto Distributed Wealth in a Small Open Economy (2021). CESifo Working Paper No. 9058, Available at SSRN: https://ssrn.com/abstract=3842322

Matthias Birkner (Contact Author)

Johannes Gutenberg University Mainz ( email )

Saarstr. 21
Jakob Welder-Weg 4
Mainz, 55122
Germany

Niklas Scheuer

Johannes Gutenberg University Mainz ( email )

Saarstr. 21
Jakob Welder-Weg 4
Mainz, 55122
Germany

Klaus Wälde

Johannes Gutenberg University Mainz - Gutenberg School of Economics and Management ( email )

Mainz
Germany

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