Discrimination, Income and Wealth Distribution, and Business Cycles

Abstract

This study generalizes the heterogeneous-household growth model with dynamic interactions between economic growth, inequality in wealth and income, and discrimination proposed by Zhang (2017). The original model is in an integration of Walrasian-general-equilibrium theory and neoclassical-growth theory under influences of literature of economic discrimination. The economy is composed of one capital good sector, one consumer good sector, and multiple groups of households. It describes a dynamic interdependence between wealth accumulation, income and wealth distribution, time distribution and division of labor under discrimination. Our generalization is to allow all constant parameters to be time-dependent. The generalization makes the original model more robust as the current model allows us to study effects of almost any types of exogenous time-dependent perturbations on movement of the system. We provide a few examples of business cycles due to periodic exogenous shocks.