Economic Interactions and the Distribution of Wealth

  • Davide Fiaschi
  • Matteo Marsili
Part of the New Economic Windows book series (NEW)


This paper analyzes the equilibrium distribution of wealth in an economy where firms’ productivities are subject to idiosyncratic shocks, returns on factors are determined in competitive markets, dynasties have linear consumption functions and government imposes taxes on capital and labour incomes and equally redistributes the collected resources to dynasties. The equilibrium distribution of wealth is explicitly calculated and its shape crucially depends on market incompleteness. In particular, a Paretian law in the top tail only arises if capital markets are incomplete. The Pareto exponent depends on the saving rate, on the net return on capital, on the growth rate of population and on portfolio diversification. On the contrary, the characteristics of the labour market mostly affects the bottom tail of the distribution of wealth. The analysis also suggests a positive relationship between growth and wealth inequality.


Labour Market Equilibrium Distribution Saving Rate Wealth Distribution Incomplete Market 
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Copyright information

© Springer-Verlag Italia 2010

Authors and Affiliations

  • Davide Fiaschi
    • 1
  • Matteo Marsili
    • 2
  1. 1.Dipartimento di Scienze EconomicheUniversity of PisaPisaItaly
  2. 2.The Abdus Salam International Centre for Theoretical PhysicsTriesteItaly

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