We explore how the underemployment problem of less-developed economies is related to income inequality. Consumers have nonhomothetic preferences over differentiated products of formal-sector goods and thus inequality affects the composition of aggregate demand via the price-setting behavior of firms. We find that high inequality divides the formal sector into mass producers and exclusive producers (which serve only the rich); high inequality generates an equilibrium where many workers are crowded into the informal economy; and an increase in subsistence productivity raises the unskilled workers' wages and boosts employment due to the higher purchasing power of poorer households. (JEL D31, D43, E24, E26, J24)
We introduce non-homothetic preferences into an innovation-based growth model and study how income and wealth inequality affect economic growth. We identify a (positive) price effect--where increasing inequality allows innovators to charge higher prices and (negative) market-size effects--with higher inequality implying smaller markets for new goods and/or a slower transition of new goods into mass markets. It turns out that price effects dominate market-size effects. We also show that a redistribution from the poor to the rich may be Pareto improving for low levels of inequality.
Smarte Technik verspricht mittelfristig eine Echtzeit-Abstimmung zwischen Stromangebot und -nachfrage und damit eine Chance für die erneuerbare Energien. Trägt lokale Politik das ihre bei, könnte Energie insgesamt ein Gut unter vielen werden, das man mit ruhigem Gewissen konsumieren kann. Dafür müssen mehrere relevante Faktoren berücksichtigt - und Energie vor allem entsprechend bepreist werden. Für eine tatsächlich nachhaltige Energiezukunft ist aber eine globale Politik unabdingbar. Unabhängig davon scheinen wir uns auf eine Zeit mit ungewohnt hohen Energiepreisen gefasst machen zu müssen. Aufgrund der breiten Palette von Anpassungsmöglichkeiten muss dies nicht zwingend zu unüberwindbaren Problemen führen.
Abstract All current, and likely near-term future, climate protection measures only cover a limited fraction of global emissions. A single value attached to CO2 (independent of the source that generates it), for market based instruments such as CO2 taxes or cap-and-trade systems, is insufficient to account for the complex economic interlinkages between specific emission-generating activities and CO2 emissions throughout the world. First, static partial and general equilibrium models illustrate how different types of emissions are subject to specific General Equilibrium Translation Factors and leakage effects, which define the optimal pattern of fuel-specific, unilateral carbon taxes. The leakage, which implies that regional emission avoidance may partly be offset in other regions and time periods, depends on the type of resources involved and the characteristics of the markets in which they are traded. Second, a dynamic model accounting for fuel exhaustibility shows that the time-dimension is crucial and that the relevant medium-term leakage may be much larger than suggested static rates. Sensible leakage rates depend on discount rates for future emissions and on uncertain future technological and political developments. The traditional leakage literature does not explicitly consider these, even though in their absence overall leakage would approach 100 %. Instead, literature has mainly focused on static fuel supply curves and rates of contemporaneous leakage.
Abstract The numerical simulations show that in a business-as-usual scenario the optimal unilateral OECD climate tax rate on CO2 emissions from oil may be only half of the tax rate on emissions from coal. This is reverted if the CO2 intensive coal-to-liquids conversion processes become an important additional source of liquid fuels in future: negative leakage occurs and the optimal current climate tax on oil emissions may be up to two times the genuine regional willingness to pay for global emission reductions, even if the substitution of crude oil by synthetic liquids starts only in the future.
