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INCOME DISTRIBUTION BY AGE GROUP AND PRODUCTIVE BUBBLES

Published online by Cambridge University Press:  13 October 2020

Xavier Raurich  and
Thomas Seegmuller
Xavier Raurich*
Affiliation:
University of Barcelona
Thomas Seegmuller
Affiliation:
Aix Marseille University, CNRS and AMSE
*
Address correspondence to: Xavier Raurich, Department of Economics, University of Barcelona, Avinguda Diagonal, 696, 08034Barcelona, Spain. e-mail: xavier.raurich@ub.edu. Phone: (+34)934 024 333.
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Abstract

The aim of this paper is to study the role of the distribution of income by age group on the existence of speculative bubbles. A crucial question is whether this distribution may promote a bubble associated to a larger level of capital, that is a productive bubble. We address these issues in an overlapping generations model where agents live three periods and productive investment done in the first period of life is an illiquid investment whose return occurs in the following two periods. A bubble is a liquid speculative investment that facilitates intertemporal consumption smoothing. We show that the distribution of income by age group determines both the existence and the effect of bubbles on aggregate production. We also show that fiscal policy, by changing the distribution of income, may facilitate or prevent the existence of bubbles and may also modify the effect that bubbles have on aggregate production.

Keywords

BubbleEfficiencyIncome DistributionOverlapping Generations
Type
Articles
Information
Macroeconomic Dynamics , Volume 26 , Issue 3 , April 2022 , pp. 769 - 799
Copyright
© Cambridge University Press 2020

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Footnotes

We thank two anonymous referees for their helpful suggestions and comments. This work has been carried out thanks to the financial support of the French National Research Agency, ANR-17-EURE-0020 and ANR-15-CE33-0001-01, and the Ministerio de Economía y Competitividad of the Government of Spain through grant RTI2018-093543-B-I00.

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