Does structural change lead to inequality change? A macroeconomic approach.

Orientador(a): Eduardo Zilberman

Co-orientador(a): Tiago Couto Berriel

While structural change literature has been mainly focused on explaining the Kuznets Facts - a set of regularities concerning sectoral dynamics throughout economic growth - important issues were left apart. Inequality was one of them: Kuznets himself, when making some of the first documentation of structural change patterns, repetitively expressed his concern that inequality and sector reallocation were linked. In this regard, we seek to extend the benchmark model of structural change to introduce wealth and income distribution. We allow idiosyncratic risky and incomplete markets in a two-sector environment of growth. In a quantitative exercise, a secular transition from a poor and good's producer economy to a richer and service-based one is conducted. We establish how a time-varying relative price of consumption and investment - yielded by the model's multi-sector structure - plays an important role in the inequality behavior. Watching a rising trend for this relative price, agents allocate more consumption to the beginning of the transition. With the subsequent rise in interest rates and the lower accumulation of capital, inequality soars within this period. We also show that, when workers may be restricted to switch sectors, income inequality jumps during the first years, while wealth inequality actually becomes smaller than in the frictionless case. Finally, we calibrate the model based on the US economy 1950-2000, obtaining a good fit for sectoral shares, and a reasonable fit for income Gini percent variations. Our consumption-investment relative price effect on inequality does not explain the rise in the Gini index after the 1980s.