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MINIMUM CONSUMPTION REQUIREMENTS: THEORETICAL AND QUANTITATIVEIMPLICATIONS FOR GROWTH AND DISTRIBUTION

Published online by Cambridge University Press:  01 December 1999

Satyajit Chatterjee  and
B. Ravikumar
Satyajit Chatterjee
Affiliation:
Federal Reserve Bank of Philadelphia
B. Ravikumar
Affiliation:
University of Iowa
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Abstract

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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.

Keywords

GrowthInequalityWealth DistributionMinimum Consumption
Type
Research Article
Information
Macroeconomic Dynamics , Volume 3 , Issue 4 , December 1999 , pp. 482 - 505
Copyright
© 1999 Cambridge University Press