Work detail

Wealth inequality in dynamic stochastic general equilibrium models

Author: Mgr. Tomáš Troch
Year: 2014 - summer
Leaders: PhDr. RNDr. Josef Stráský Ph.D.
Consultants:
Work type: Economic Theory
Masters
Language: English
Pages: 88
Awards and prizes: M.A. with distinction from the Dean of the Faculty of Social Sciences for an excellent state-final examination performance and for an extraordinarily good masters diploma thesis.
Link: https://is.cuni.cz/webapps/zzp/detail/138285/
Abstract: In my diploma thesis I propose a dynamic stochastic general equilibrium model to describe economic
inequality. The model combines two approach
es that were traditionally used to model inequality
-
first, it features two classes of agents that differ in their ownership of capital and second, each class
consists of
heterogeneous
agents who are subject to uninsurable idiosyncratic shocks. This
combin
ation allows the two classes to behave in a fundamentally different way while maintaining the
individual character of agents in the economy
-
a feature that has not been
modeled
before but
which adequately describes the empirical reality. I show that the
model with classical RBC structure
and a single wage underestimates the observed inequality. When the wage differential is introduced
through different taxation of the two classes, the model matches empirical inequality much better.
Further I argue that th
e government can significantly reduce inequality at a relatively small cost in
terms of output lost. Finally using Theil coefficient decomposition, I show how much of the total
inequality is attributable to between
-
class and within
-
class inequalities

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