Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/309996 
Year of Publication: 
2025
Series/Report no.: 
Cardiff Economics Working Papers No. E2025/1
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
This paper investigates the long-run nexus between wealth inequality and aggregate output using a DSGE model in which wealth inequality endogenously affects individual entrepreneurship incentives, thereby influencing aggregate output. Our model passes the indirect inference test against the UK data from 1870 to 2015. We find that shocks to aggregate TFP, entrepreneurial barriers, government grant support and general government spending played significant roles in shaping historical inequality dynamics in the UK. Directly removing entrepreneurial barriers or indirectly providing government grant support to the private sector such as through inclusive loan subsidies are effective means of reducing inequality and stimulating output growth.
Subjects: 
Wealth Inequality
Aggregate Output
Entrepreneurship
Indirect Inference
JEL: 
E10
C63
O40
D31
N30
Document Type: 
Working Paper

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