• Redistribution Policy in a Model with Heterogeneous Time Preference. Coauthored with James Redekop (University of Waterloo).

  • Original version: December 1997. This paper was rejected at three journals and died as a revise and resubmit at another.

    Abstract:We examine how redistribution policy affects the distribution of income when human capital accumulation is endogenous and the fundamental source of heterogeneity in the economy stems from varying degrees of time preference across members of the population. In comparing the steady states of a dynamic general equilibrium model calibrated to the Canadian economy, we find that progressively more generous income transfer programs (financed with a flat income tax) lead to only modest decreases in income inequality, but significant increases in earnings inequality and large losses in per capita output. With the exception of the bottom income quintile, individuals display a strong preference for the long-run situation associated with the absence of government redistribution policy. Nevertheless, taking into account transition dynamics, a majority of individuals would vote for implementation of redistribution policy. The distribution of time-preference plays a critical role in generating this last result.
     
  • Heterogeneous Time Preference and the Distribution of Wealth. Coauthored with James Redekop (University of Waterloo).

  • Original Version: July 1998. This paper had some potential.

    Abstract: This paper analyzes a dynamic model in which physical capital can be accumulated or depleted, and labour supply is endogenous. The distribution of income is then endogenously determined by both technological parameters of production, and the distribution of agents' discount parameters. Degenerate wealth distributions, in which only the most patient agents have any wealth, are avoided by having a fraction of the agents die each period, and bequeath their wealth to descendants with independently random discount parameters. On average, more patient agents will have higher wealths and incomes, but in the short run agents' stocks of wealth depend on their inherited wealth. If a patient individual lives long enough, she will retire and live on only investment income, while if an impatient individual lives long enough, he will deplete all his wealth and live on only labour earnings. The effects of a general increase in patience are an increase in the wage rate, a lowering of the return on capital, and general increases in wealth, income, and utility. Possibilities for engineering such an increase, by promoting ``artificial patience'', could include favourable taxation of investment income, forced savings such as payroll-tax financed pension plans, or public subsidies for education and health.