Linking functional with personal income distribution: a stock-flow consistent approach

Dafermos, Yannis; Papatheodorou, Christos

Abstract

© 2015 Taylor & Francis. This paper develops a benchmark stock-flow consistent model that links functional with personal income distribution. The model consists of various household groups that receive income from different sources or from the same sources in different proportions. The dynamic linkage between functional and personal income distribution is formulated as part of a complete macroeconomic system. Inequality decomposition techniques are employed to associate income sources with personal income distribution. Simulation exercises are conducted to reveal the various ways through which functional and personal income distribution interact. In the simulations, a rise in the exogenous component of low-skilled workers’ wage share reduces inequality in the short run; in the medium to long run inequality starts increasing due to certain macroeconomic developments, but remains lower than its initial level in almost all cases. A change in functional income distribution due to a rise in the dividend payout ratio of firms increases inequality both in the short run and the long run.

• Journal Article Type: Article
• Publication Date: Jan 1, 2015
• Publicly Available Date: Jun 6, 2019
• Journal: International Review of Applied Economics
• Print ISSN: 0269-2171
• Electronic ISSN: 1465-3486
• Publisher: Taylor & Francis (Routledge)
• Peer Reviewed: Peer Reviewed
• Volume: 29
• Issue: 6
• Pages: 787-815
• DOI: https://doi.org/10.1080/02692171.2015.1054365
• Keywords: functional income distribution, personal income distribution, stock-flow consistent modelling
• Public URL: https://uwe-repository.worktribe.com/output/841549
• Publisher URL: http://dx.doi.org/10.1080/02692171.2015.1054365
• Additional Information: Additional Information : This is an Accepted Manuscript of an article published by Taylor & Francis in International Review of Applied Economics on 29 June 2015, available online: http://wwww.tandfonline.com/10.1080/02692171.2015.1054365