Getachew, Yoseph2017-05-122017-04Getachew, YY 2017, 'Idiosyncratic and aggregate risks, inequality and growth', Bulletin of Economic Research, vol. 69, no. 2, pp. 109-123.0307-3378 (print)1467-8586 (online)10.1111/boer.12096http://hdl.handle.net/2263/60335The paper disaggregates productivity shocks at a firm level into idiosyncratic and aggregate risks, and studies their impacts on inequality, growth and welfare. It develops a growth model with human capital and incomplete insurance and credit markets that provides a closed-form solution for income inequality dynamics. We find that uninsured idiosyncratic risks are the most important determinants of inequality, growth and welfare. They are the source of nondegenerate wealth distribution. A lower weight of these shocks leads to lower steady-state inequality, higher growth and welfare. A redistribution of income that serves as social insurance against such risks increases welfare and decreases inequality. But, it also decreases growth by distorting individual consumption and saving decisions.en© 2016 Board of Trustees of the Bulletin of Economic Research and John Wiley & Sons Ltd. This is the pre-peer reviewed version of the following article : Idiosyncratic and aggregate risks, inequality and growth, Bulletin of Economic Research, vol. 69, no.2, pp. 109-123, 2017. doi : 10.1111/boer.12096. The definite version is available at : http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-8586.InequalityGrowthProductivity shockIdiosyncratic riskAggregate riskWelfarePostprint Article