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MINIMUM CONSUMPTION REQUIREMENTS: THEORETICAL AND QUANTITATIVE IMPLICATIONS FOR GROWTH AND DISTRIBUTION

  • Satyajit Chatterjee (a1) and B. Ravikumar (a2)
    • Published online: 01 December 1999
Abstract

We study the impact of a minimum consumption requirement on the rate of economic growth and the evolution of wealth distribution. The requirement introduces a positive dependence between the intertemporal elasticity of substitution and household wealth. This dependence implies a transition phase during which the growth rate of per-capita quantities rise toward their steady-state values and the distributions of wealth, consumption, and permanent income become more unequal. We calibrate the minimum consumption requirement to match estimates available for a sample of Indian villagers and find that these transitional effects are quantitatively significant and depend importantly on the economy's steady-state growth rate.

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Corresponding author
Address correspondence to: Satyajit Chatterjee, Federal Reserve Bank of Philadelphia, 10 Independence Mall, Philadelphia, PA 19106, USA; e-mail: Satyajit.Chatterjee@phil.frb.org
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Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
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