Business Cycle Dynamics of a New Keynesian Overlapping Generations Model with Progressive Income Taxation

Figure 1

Non-stochastic Steady State

Generotion

Generotion

Generotion

wealth in our model is also close to the one observed empirically. In our model, the
Gini coefficient of wealth amounts to 0.64, whereas Greenwood (1983), Wolff (1987),
Kessler and Wolff (1992), and Dlaz-Gimenez, Quadrini, and Rlos-Rull (1997) estimate
Gini coefficients of the wealth distribution for the US economy in the range of 0.72
(single, without dependents, female household head) to 0.81 (nonworking household
head).¹³ Our model only fails to model the wealth concentration among the very rich
agents. In order to replicate the wealth distribution of the top quintile, one had to
introduce entrepreneurship as in Quadrini (2000).

calculate the Gini coefficient using only six observations to approximate the Lorenz curve.

¹³Huggett (1996) shows that we are able to replicate the empircally observable heterogeneity of
wealth in a computable general equilibrium model if we introduce both life-cycle savings and individual
earnings heterogeneity.

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