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By Reto Foellmi

This booklet deals a singular point of view that permits to include altering intake and construction constitution into versions of monetary progress. ranging from the empirical commentary that source of revenue and intake constitution are heavily comparable, it develops a tractable theoretical framework which allows to investigate macroeconomic types in step with those empirical proof. for that reason, principal macroeconomic phenomena are larger understood: the explanations at the back of long-run progress, structural swap, and the effect of inequality on strategies and progress.

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Extra resources for Consumption Structure and Macroeconomics: Structural Change and the Relationship Between Inequality and Growth

Example text

This proportionality implies that utility is CRRA in expenditures. P r o p o s i t i o n 1 From viewpoint of an individual, the indirect utility function is CRRA in expenditures over time if the relative price structure remains over time. If these conditions hold, the inteitemporal rate of substitution constant does not differ across agents. Proof. See Appendix. • It is important to note that the utility function across agents at a given point in time does not exhibit a CRRA form. The reason is that poor and rich agents do not consume the same goods, hence they face a diflPerent price index.

0 if ^ is high and vice versa. We summarize this discussion in the following L e m m a 3 a. The R-curve crosses the p-axis at PR = ^ \l -{- j^-gjzr[\ ^/ 1 < bs ^ ^ , even at g = 0 not all products can be produced, the share of products consumed x = ^ is then given by the equation 1 = ^ 1 — x~^ jr—h ^ j ^ " • d.

13) is only fulfilled if c(0) = 5 as long as Xjp{0) > 0. For preferences v{') which are bounded but exhibit no bliss point, the consumer will choose c(0) = 00 because limc-^00 '^'(c) = 0 when v{c) is bounded. In both cases v{c{0)) = E holds, thus the normalization yields the required result. On the other hand, the normalization of the second integral prevents divergence for j -^ 00. As goods j > Ni are not consumed, the integrand equals zero for all these goods. Of course, we only need one of the two normalizations if we restrict the values the hierarchy parameter 7 can take.

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