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There could be some complicated models where high inequality could have effect on efficiency - the research is inconclusive (or to be more precise almost non existent) on the matter. However, in Public Economics, depending on the selected welfare function (ralwsian, utilitarian, charitable conservative/libertarian etc.), inequality matters for optimal ...


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With my very limited knowledge of development economics: $\left(\frac{x_m}{x}\right)^\alpha$ represents the proportion of the population that has an income larger or equal to $x$ where $x\geq x_m>0$ and $x_m$ is the minimum income amount. Example 1: Suppose $\alpha\rightarrow 1$ and the minimum income in the economy is $50,000$. We may ask the ...


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I think the big unknown here is how much they'll start to dissimulate and/or offshore their (new) wealth. According to one paper: A recent study by Brülhart et al. (2017) gives support to the plausible assumption that the effect of net wealth taxes on reported wealth is the more pronounced the more integrated the regions involved are. According to ...


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This depends on the exact preferences, but usually the utility function $$ U(x,y) = v(x) + y $$ is such that $$ \lim_{x \to 0} |MRS(x,y)| = \lim_{x \to 0} \frac{\text{d}v(x)}{\text{d} x} = \infty. $$ In this case it is the consumption of an additional marginal unit of the nonlinear good $x$ that is infinitely useful compared to the consumption of an ...


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The argument is correct Social Mobility and Income Inequality are simply two distinct phenomenons. Mobility is arguably the more complex one, and there are many different ways to define it. As an example, absolute mobility refers to someone earning more income in absolute terms (\$ per year), while relative mobility refers to someone earning more in ...


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Per our comments above, I believe the expression you have is incorrect. Your confusion is worsened by some poor terminology use. Gross return can be written as $R = 1 + \frac{a}{w}$ where $w$ is initial wealth (or more accurately, the initial investment) and $a$ is new cash flow generated by the investment. So for example, with $w = 100$ and $a = 5$, the ...


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There is a lot of research into this area. You might want to look into the papers of Angus Deaton, Thomas Picketty, Gabriel Zucman, Emanuel Saez or Branko Milanovic for starters. Especially, Emanuel Saez directly focuses on optimal taxation under different social preferences - including utilitarianism and ralwsianism where reducing inequality matters. ...


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(Mostly) ignore money for this growth issue; it's by and large a red herring that's distracting you. Instead just think of technological progress for instance. Assume everyone is washing their clothes by hand. That takes a fair bit of time. Now someone invents a washing machine. Everyone (who can get a washing machine) will then have more time on their ...


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The Federal Reserve has two statistical programs that I believe might address your question. The first is the Survey of Consumer Finances (SCF) and the second is the Flow of Funds (FoF). You should be able to find the data on the Fed's website.


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Wealthy individuals have invested most of their money. One of the biggest reasons for this is inflation. Most countries, especially those in the West, have a small, positive rate of inflation. Inflation is why a dollar when our grandparents were children was worth much more than a dollar is worth today. If the "rich" simply stored their money in their ...


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A random variable $X$ has a Pareto distribution with Pareto exponent $\theta$ if $$\text{P}(X>x)=\begin{cases} \left(\frac{x}{x_m}\right)^\theta \quad \text{ if } x\geq x_{min}\\ \ \ 1 \quad \quad \quad \text{ if } x<x_{min} \end{cases}$$ In this case, the Pareto exponent is $\theta = \alpha - 1$. Remember that $P(X>x)=\int_x^\infty p(x')\...


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How long can I – coming from country X – live in country Y by spending my last monthly salary converted by nominal exchange rate: 1 as a backpacker or as a convenience tourist? 2 adapting to the other country's standards which may be lower? 3 adapting to higher standards than I am used to? 4 How much does this period deviate from a month? My ...


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This is tricky to answer precisely because governments vary a lot in the services they extent to visitors. There is also variation in the mix of consumption goods across countries as well as their relative prices. You might respond to local conditions by changing your consumption bundle more or less than the average person and that would change the economics ...


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The short answer is that money is not the same wealth. You yourself probably have less money than the value of all the stuff you own. When the economy grows the total amount of wealth grows. (This is usually also accompanied by growth of money, but that is a separate matter.)


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Is it that the consumer would not consume anything of the nonlinear good in case of insufficient wealth? No, it is exactly the other way around. The utility function in the two goods case will have the following form: $$U(x,y)=u(x)+y$$ We assume that $u'(x)>0$ and $u''(x)<0$ or marginal utility of $x$ is decreasing in $x$. $MU_y$ meanwhile is ...


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Onurcanbektas, I really like your thought process. The problem with your mental model is that you've assumed economic output is exogenous. However, in the real world (most) jobs produce economic output. This output then increases the size of the pie, allowing people to be, on average, richer. However, from a societal perspective, I believe we will ...


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American economic theorist Henry George wrote about precisely this issue in his famous work Progress and Poverty published in the late 1800s, and based on his observations on the economic development of San Francisco during the gold rush. His argument was that increasing economic development primarily benefitted landowners, at the expense of both capital ...


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