Income Distribution and Endogenous Growth

This paper studies a deterministic one-sector capital accumulation model with endogenous labor supply. Because of a production externality (learningby-investing) the economy may experience endogenous growth. It is shown that the distribution of capital among the agents has an effect on the growth rate of per-capita output. There exists a continuum of balanced growth paths with different growth rates. A higher growth rate can be achieved when income inequality is greater, that is, when the income distribution is more strongly dispersed. The paper shows that countries with identical production technologies and identical preferences may have different GDP growth rates because wealth is distributed differently among their inhabitants. JEL Classification Numbers:041, D31.