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

Dafermos, Yannis; Papatheodorou, Christos

Abstract

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.

Citation

Dafermos, Y., & Papatheodorou, C. (2015). Linking functional with personal income distribution: a stock-flow consistent approach. International Review of Applied Economics, 29(6), 787-815. https://doi.org/10.1080/02692171.2015.1054365

• Journal Article Type: Article
• Acceptance Date: May 10, 2015
• Online Publication Date: Jun 29, 2015
• Publication Date: Jun 29, 2015
• Deposit Date: Aug 20, 2019
• Publicly Available Date: Aug 20, 2019
• Journal: International Review of Applied Economics
• Print ISSN: 0269-2171
• Electronic ISSN: 1465-3486
• Publisher: Taylor and Francis Group
• 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