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© National Institute of Economic and Social Research 2019

The Effects of Gender Inequality, Wages, Wealth Concentration and Fiscal Policy on Macroeconomic Performance in the UK

Özlem Onaran, Cem Oyvat and Eurydice Fotopoulou

22 November, 2019

Abstract

The aim of this paper is to develop a macroeconomic model to analyse the effects of multiple dimensions of inequalities and fiscal policies on macroeconomic outcomes. The theoretical novelty is to develop a unified model, integrating

i) the impact of three dimensions of inequalities – functional income distribution between wages and profits, gender inequality, and wealth concentration, and their interactions;

ii) the impact of fiscal policies, particularly the effects of government spending in social vs. physical infrastructure, and different types of taxation;

iii) both the demand and supply - side effects;

iv) effects on both output and employment.

We build a three sector gendered model with social sector (health, social care, education, child care), the rest of the market economy, and unpaid care sectors and three types of factors of production - male and female labour, and capital. On the demand side, we model behavioural equations determining consumption, private investment, exports, imports and government spending. On the supply side, productivity changes in the medium-run as an outcome of changes in wages, public and private expenditure and unpaid care. Hours of employment in the social sector and the rest of the economy are determined by output and labour productivity in the relevant sec- tors, and social norms about occupational segregation determines hours of employment of women and men in both sectors. Wealth concentration depends on functional income distribution and wealth tax.