Reference : Income Inequality, Productivity, and International Trade
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Business & economic sciences : International economics
Income Inequality, Productivity, and International Trade
Picard, Pierre M mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Hsu, Wen-Tai mailto []
Lin, Lu mailto []
[en] Trade ; income inequality
[en] This paper discusses the effect of income inequality on selection and aggregate productivity in a general equilibrium model with non-homothetic preferences. It shows the existence of a negative relationship between the number and quantity of products consumed by an income group and the earnings of other income groups. It also highlights the negative effect of a mean-preserving spread of income on aggregate productivity through the softening of firms’ selection. This effect is however mitigated in the presence of international trade. In a quantitative analysis, it is shown that an excessively large mean-preserving spread of income may harm the rich as it raises firms’ markups on their purchases. This is contrary to the general belief that income inequality benefits the rich.,%20Productivity,%20and%20International%20Trade.pdf

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