By whatever indicator it is assessed, inequality has been rising in recent years. This book considers it a macroeconomic issue and innovates by including it among its topics. The chapter begins by reviewing evidence and facts on inequality, measurement issues, and the relation with poverty. The macroeconomic models of income distribution reviewed next include vintage models, endogenous growth models, and whether inequality can be accommodated in ‘representative-agent’ models. Attention then turns to ‘factor’ (labour-capital) income shares, which have also been changing recently, reviewing both the relevant analytics and the possible processes that underlie this change. The chapter concludes with recent debates on determinants of inequality, the evolution of the labour share (the ‘r-g’ question), and the future of income distribution.
Endogenous growth models I: Escaping diminishing returns
