Wealth Inequality, or r-g, in the Economic Growth Model

Ryoji Hiraguchi

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: We investigate a simple continuous-time overlapping generations model with a neoclassical production function and technological progress. We demonstrate that the degree of wealth inequality is positively related to the difference between the real interest rate r and the growth rate of income per capita g , and if g falls, the r-g gap widens and inequality worsens. We also argue that a wealth tax reduces the wealth inequality. All of these results are consistent with the famous predictions advanced by Thomas Piketty in Capital in the Twenty-First Century (2014). We next investigate consumption tax and find that it enhances capital accumulation and reduces r-g , and thus wealth inequality.

Pages: 17 pages
Date: 2015-10
New Economics Papers: this item is included in nep-dge, nep-gro, nep-hpe and nep-ino
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:15117

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