Is a more heterogeneous population beneficial or harmful to long-term economic performance? This article addresses this and other questions in a dynamic general equilibrium model where consumers differ in their labour productivity and time preference. We show how differences in the cross-sectional distribution of these characteristics can affect the economy via two channels. The first one involves changing the composition of the labour force; and the second one involves changing the cross-sectional distribution of the marginal tax rate. We show how these channels are, respectively, determined by the shape of the labour supply function and the curvature of the marginal tax function.
CitationThe Economic Journal, Volume 129, Issue 623, October 2019, Pages 2949–2977, https://doi.org/10.1093/ej/uez016
Author affiliation/Organisation/COLLEGE OF SOCIAL SCIENCES, ARTS AND HUMANITIES/School of Business
VersionAM (Accepted Manuscript)
Published inThe Economic Journal
PublisherOxford University Press (OUP), Royal Economic Society