Transitional dynamics and the distribution of wealth in a neoclassical growth model

The evolution of the personal distribution of wealth in a standard neoclassical growth model is studied. If the economy is growing toward the steady state and preferences are such that marginal utility from consumption is infinite (finite) at some (all) positive (non-negative) consumption level(s), then the average saving propensity of agents is positively (negatively) related to their wealth. If the economy is decaying toward the steady state, these relationships are reversed. If wealth and average saving propensity are positively (negatively) related, the distribution of current period wealth Lorenz-dominates (is Lorenz-dominated by) next period’s distribution of wealth. 1