When are There Natural Limits on Inequality?

Scott S. Condie, Richard Evans and Kerk L. Phillips
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Scott S. Condie: Department of Economics, Brigham Young University
Kerk L. Phillips: Department of Economics, Brigham Young University

No 2014-10, BYU Macroeconomics and Computational Laboratory Working Paper Series from Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory

Abstract: This paper examines Thomas Piketty's thesis that there are no natural limits on accumulation of wealth. We undertake our examination in the context of a simple general equilibrium model with infintely-lived dynasties. We show that extreme wealth accumulation does not happen in general equilibrium unless capital and labor are substitutes, an assumption which also leads to unbalanced growth. We also show that even with unbalanced growth, differences in rates of return and effective labor are not sufficient to cause unbounded inequality. Only savings rate differences can lead to extreme wealth concentration. Finally, we show that while a flat wealth tax will not eliminate extreme wealth concentration, both a graduated wealth tax and a flat income tax will.

Keywords: Piketty; inequality; wealth tax; welfare (search for similar items in EconPapers)
JEL-codes: D51 H21 H23 H30 P16 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2014-10
New Economics Papers: this item is included in nep-dge, nep-gro, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:byu:byumcl:201410

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