NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Aspirations and Inequality

Garance Genicot, Debraj Ray

NBER Working Paper No. 19976
Issued in March 2014
NBER Program(s):   DEV

This paper develops a theory of socially determined aspirations, and the interaction of those aspirations with growth and inequality. The interaction is bidirectional: economy-wide outcomes determine individual aspirations, which in turn determine investment incentives and social outcomes. Thus aspirations, income and the distribution of income evolve jointly. When capital stocks lie in some compact set, steady states distributions must exhibit inequality and are typically clustered around local poles. When sustained growth is possible, initial histories matter. Either there is convergence to an equal distribution (with growth) or there is perennial relative divergence across clusters, with within-cluster convergence. A central feature that drives these results is that aspirations that are moderately above an individual’s current standard of living tend to encourage investment, while still higher aspirations may lead to frustration.

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This paper was revised on December 30, 2016

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Document Object Identifier (DOI): 10.3386/w19976

forthcoming in Econometrica

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