Inequality and growth: the roles of life expectancy and relative consumption

We construct an endogenous growth model, where there are two types of income inequalities: intragenerational and intergenerational. We then examine how these two types of inequalities interact and the relationship between inequality and growth. We consider two factors that can affect inequality: life expectancy and consumption externalities. Both life expectancy and consumption externalities have a positive effect on the long-run growth rate, and have a positive (negative) effect on the intragenerational inequality of younger (older) generations, and a negative effect on intergenerational inequality. Because the second and third effects dominate the first effect, inequality decreases. A negative relationship between growth and inequality is obtained.