Let's suppose the poor do no investment and consume all the charity they receive. two separate cases are (a) when the current non-poor might have poor descendants-- who will inherit some of their investment-- and (b) when they do not. We'll use assumption (b). Let's assume zero taxes, so taxes on investment income play no role. The social discount rate is very important, so let's assume it's zero, leaving it out of the picture. We'll just do some comparisons of the next 200 years. The benefit to the poor from investment might come from (a)increased information production/process innovation, (b) increased product innovation-- new goods, consumer surplus, or (c) an increased marginal product of labor due to the bigger capital stock, and hence higher wages.
I'll ask macro people about this.
To view the post on a separate page, click: at 1/23/2008 04:47:00 AM (the permalink).