Abstract:
This paper examines the long-term relationship between economic growth and inequality in the UK using an endogenous growth model with heterogeneous agents. The model links entrepreneurial incentives to individual wealth, showing how wealth distribution endogenously influences growth. Estimation via Indirect Inference confirms its ability to replicate UK data from 1870 to 2016. The findings reveal a trade-off between wealth equalization and growth, with welfare analysis showing that optimal policies depend on priorities: higher income transfers benefit lowerincome groups but reduce growth, while lower transfers support growth with modest welfare costs