Policies for Equality Under Low or No Growth: A Model Inspired by Piketty
Jeroen van den Bergh and
Review of Political Economy, 2020, vol. 32, issue 2, 243-258
GDP growth is declining in industrial economies, and there is increasing evidence that growth may be environmentally unsustainable. If growth falls below returns to wealth then inequalities increase, as Thomas Piketty recently showed. This poses a challenge to managing slow and/or negative growth. Here, we examine policies that have been proposed to solve the problem of increasing income inequality in slow- or non-growing economies, including redistribution, taxation, and employment reforms. We construct a simple model, expanding Piketty’s recent work, to evaluate the parameter ranges within which these different policies can be effective. Our analysis leads to two main findings. First, except in the case of complete wealth equality, any strategy to prevent increasing income inequality must reduce returns to wealth below the rate of growth. Second, several strategies may prevent an increase in income inequality during periods of low growth and may slow rising inequality, but not prevent it, in non-growing economies.
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Persistent link: https://EconPapers.repec.org/RePEc:taf:revpoe:v:32:y:2020:i:2:p:243-258
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