Play for the Rich and Work for the Poor? The Optimal Distribution of Saving and Work in the Heterogeneous Agents Neoclassical Growth Model

32 Pages Posted: 27 Sep 2021

See all articles by Martin Wolf

Martin Wolf

University of Vienna - Department of Economics; Centre for Economic Policy Research (CEPR); University of St. Gallen; University of Bonn

Akshay Shanker

University of New South Wales (UNSW)

Date Written: August 1, 2021

Abstract

In an economy with un-insurable idiosyncratic labor income risk, how should saving and work hours be distributed across income and wealth? To answer this question, we study a planner who cannot complete asset markets, but dictates how much individuals must work and save. With a U.S. calibration, the planner raises total savings but not hours, driving up aggregate wages which re-distributes income toward the consumption-poor. Across the distribution, the productive (high wage earners) should save more; the wealthy should work more; the poor should keep their work hours unchanged and take advantage of the indirect transfers from higher wages.

Keywords: constrained efficiency, endogenous labor supply, incomplete markets, Pecuniary externality

JEL Classification: D31, D52, E21, E24, J22

Suggested Citation

Wolf, Martin and Wolf, Martin and Wolf, Martin and Wolf, Martin and Shanker, Akshay, Play for the Rich and Work for the Poor? The Optimal Distribution of Saving and Work in the Heterogeneous Agents Neoclassical Growth Model (August 1, 2021). CEPR Discussion Paper No. DP16479, Available at SSRN: https://ssrn.com/abstract=3928776

Martin Wolf

University of Vienna - Department of Economics ( email )

Oskar-Morgenstern-Platz 1
Vienna, Vienna 1180
Austria

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of St. Gallen ( email )

Bodanstrasse 8
SIAW-HSG
St.Gallen, 9000
Switzerland

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Akshay Shanker (Contact Author)

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
0
Abstract Views
158
PlumX Metrics