1 research outputs found
When does inequality freeze an economy?
Inequality and its consequences are the subject of intense recent debate.
Using a simplified model of the economy, we address the relation between
inequality and liquidity, the latter understood as the frequency of economic
exchanges. Assuming a Pareto distribution of wealth for the agents, that is
consistent with empirical findings, we find an inverse relation between wealth
inequality and overall liquidity. We show that an increase in the inequality of
wealth results in an even sharper concentration of the liquid financial
resources. This leads to a congestion of the flow of goods and the arrest of
the economy when the Pareto exponent reaches one.Comment: 12 pages (plus 9 pages appendixes), 8 figure