Minimum Consumption Requirements: Theoretical and Quantitative Implications for Growth and Distribution

34 Pages Posted: 27 Jun 1998

See all articles by Satyajit Chatterjee

Satyajit Chatterjee

Federal Reserve Bank of Philadelphia

B. Ravikumar

Federal Reserve Bank of Saint Louis

Date Written: October 1997

Abstract

We study the impact of a minimum consumption requirement on the rate of economic growth and the evolution of wealth distribution. The requirement introduces a positive dependence between the intertemporal elasticity of substitution and household wealth. This dependence implies a transition phase during which the growth rate of per-capita quantities rise toward their steady-state values and the distributions of wealth, consumption, and permanent income become more unequal. We calibrate the minimum consumption requirement to match estimates available for a sample of Indian villagers and find that these transitional effects are quantitatively significant and depend importantly on the economy's steady-state growth rate.

JEL Classification: O11, E21

Suggested Citation

Chatterjee, Satyajit and Ravikumar, B., Minimum Consumption Requirements: Theoretical and Quantitative Implications for Growth and Distribution (October 1997). Available at SSRN: https://ssrn.com/abstract=89548 or http://dx.doi.org/10.2139/ssrn.89548

Satyajit Chatterjee (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
215-574-3861 (Phone)
215-574-4364 (Fax)

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

B. Ravikumar

Federal Reserve Bank of Saint Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

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