Making sense of Piketty's 'fundamental laws' in a Post-Keynesian framework: the transitional dynamics of wealth inequality

Stefan Ederer and Miriam Rehm

Review of Keynesian Economics, 2020, vol. 8, issue 2, 195-219

Abstract: If Piketty's main theoretical prediction (r > g leads to rising wealth inequality) is taken to its radical conclusion, then a small elite will own all wealth if capitalism is left to its own devices. We formulate and calibrate a Post-Keynesian model with an endogenous distribution of wealth between workers and capitalists which permits such a corner solution of all wealth held by capitalists. However, it also shows interior solutions with a stable, non-zero wealth share of workers, a stable wealth-to-income ratio, and a stable and positive gap between the profit and the growth rate determined by the Cambridge equation. More importantly, simulations show that the model conforms to Piketty's empirical findings during a transitional phase of increasing wealth inequality, which characterizes the current state of high-income countries: the wealth share of capitalists rises to over 60 per cent, the wealth-to-income ratio increases, and income inequality rises. Finally, we show that the introduction of a wealth tax as suggested by Piketty could neutralize this rise in wealth concentration predicted by our model.

Keywords: Post-Keynesian; model; wealth; saving; inequality; Piketty; simulation (search for similar items in EconPapers)
JEL-codes: C63 D31 E12 E21 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.elgaronline.com/view/journals/roke/8-2/roke.2020.02.04.xml (application/pdf)

Related works:
Working Paper: Making Sense of Piketty’s ‘Fundamental Laws’ in a Post-Keynesian Framework: The Transitional Dynamics of Wealth Inequality (2018)
Working Paper: Making sense of Piketty's 'Fundamental Laws' in a Post-Keynesian Framework: The transitional dynamics of wealth inequality (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:elg:rokejn:v:8:y:2020:i:2:p195-219

Access Statistics for this article

Review of Keynesian Economics is currently edited by Thomas Palley, Matías Vernengo and Esteban Pérez Caldentey

More articles in Review of Keynesian Economics from Edward Elgar Publishing
Bibliographic data for series maintained by Phillip Thompson ().