In the United States, the income share of the top 5% income group is acyclical over the business cycle. This study attempts to explain the cyclical behavior of the income distribution over the business cycle, particularly focusing on the top 5% income earners' share, using a heterogeneous agent model featuring a choice to become an entrepreneur. The model economy successfully reproduces the acyclical behavior of the income share of the top 5%. During expansions, relatively more people become entrepreneurs at the top, which offsets the decline in the income share of the high-income earners from workers' side.
Bibliographical noteFunding Information:
We would like to thank José‐Víctor Ríos‐Rull and three anonymous referees for their insightful suggestions and comments. We wish to thank Yongsung Chang and Sun‐Bin Kim for providing the computational codes for their heterogeneous agent model. We also wish to thank seminar participants at the 2018 Asian Meeting of the Econometric Society, the 41st Annual Conference of the Eastern Economic Association, the Bank of Korea, the Korea Association of Money and Finance Conference, the Korea Econometric Society Winter Conference, Korea University, Sogang University, Texas A&M University, Yonsei University, and the Macroeconomics Study Group in Seoul for their valuable comments. This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF‐2014S1A5A2A01015689).
© (2020) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
All Science Journal Classification (ASJC) codes
- Economics and Econometrics