### Abstract

The dynamics of inequality are studied in a model of human capital accumulation with credit constraints. This model admits a multiplicity of steady state skill ratios that exhibit varying degrees of inequality across households. The main result studies equilibrium paths. It is shown that an equilibrium sequence of skill ratios must converge monotonically to the smallest steady state that exceeds the initial ratio for that sequence. Convergence is "gradual" in that the steady state is not achieved in finite time. On the other hand, if the initial skill ratio exceeds the largest steady state, convergence to a steady state is immediate.

Original language | English (US) |
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Pages (from-to) | 291-306 |

Number of pages | 16 |

Journal | Economic Theory |

Volume | 29 |

Issue number | 2 |

DOIs | |

State | Published - Oct 2006 |

### Keywords

- Income distribution
- Inequality
- Intertemporal equilibrium

### ASJC Scopus subject areas

- Economics and Econometrics

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## Cite this

Ray, D. (2006). On the dynamics of inequality.

*Economic Theory*,*29*(2), 291-306. https://doi.org/10.1007/s00199-005-0021-2