Capitalist Spirit and the Markets: Why Income Inequality Matters

Aristotelis Boukouras ()

No 16/16, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: I develop a simple static general equilibrium model with capitalist-spirit preferences and prices set by firm owners (entrepreneurs). The model’s pure symmetric Nash equilibria differ markedly from the canonical model: (i) A positive output gap and unemployment may emerge in equilibrium, despite the absence of price rigidities or information asymmetries. (ii) Income and wealth inequality affect equilibrium prices and employment. (iii) The model generates ambiguous comparative statics. Specifically, an increase in inequality of either type may reduce employment and increase the output gap of the economy, while productivity reductions may have the opposite effect. As a result, minimum wage policies may increase employment. These results provide some justification for a number of arguments used in public debates.

Keywords: capitalist spirit; general equilibrium; income distribution; income inequality; minimum wage; output gap; unemployment; wealth distribution; wealth inequality (search for similar items in EconPapers)
JEL-codes: D31 D63 E24 E25 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ent, nep-lab and nep-mac
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