SFB 303 Discussion Paper No. A-439

Author: Jerison, Michael
Title: Optimal Income Distribution Rules and Representative Consumers
Abstract: This paper derives observable properties of economies with optimal income distribution rules that specify consumersī incomes as functions of aggregate income and prices. Optimality implies that the aggregate demand function is generated by a single "representative" consumer, cf. Saumelson (1956). We derive an additional implication which, when consumers receice fixed shares of aggregate income, requires that the consumersī demands become more dispersed when aggregate income rises. This last condition has empirical support. The results relate the representative consumerīs preferences to a version of Kaldorīs compensation criterion and show when both can be used for normative analysis without internal inconsistency.
Keywords: social welfare, representative consumer, increasing dispersion, income distribution
JEL-Classification-Number: D11, D60, D31
Creation-Date: February 1994
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