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The attention trap: rational inattention, inequality, and fiscal policy

Abstract:

I show that if it is costly for households to process information about asset returns, a model with ex-ante identical households features persistent inequality. The steady state has a two-agent structure, with inequality maintained by a complementarity between attention and wealth: wealthy households have stronger incentives to pay attention to asset choices, and so earn higher returns than asset-poor households. Fiscal expansions are less powerful in this model than in a standard model with ...

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Institution:
University of Oxford
Division:
SSD
Department:
Economics
Oxford college:
St Anne's College
Role:
Author
Publisher:
University of Oxford Publisher's website
Article number:
931
Series:
Department of Economics Discussion Paper Series
Place of publication:
Oxford
Publication date:
2021-01-25
ISSN:
1471-0498
Paper number:
931
Language:
English
Keywords:
Pubs id:
1158396
Local pid:
pubs:1158396
Deposit date:
2021-01-25

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