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The Piketty Transition

Daniel Carroll and Eric Young ()

No 1432, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: We study the effects on inequality of a \"Piketty transition\" to zero growth. In a model with a worker-capitalist dichotomy, we show first that the relationship between inequality (measured as a ratio of incomes for the two types) and growth is complicated; zero growth can raise or lower inequality, depending on parameters. Extending our model to include idiosyncratic wage risk we show that growth has quantitatively negligible effects on inequality, and the effect is negative. Finally, following Piketty?s thought experiment, we study how the transition might occur without declining returns; here, we find inequality decreases substantially if financial innovation acts to reduce idiosyncratic return risk, and does not change much at all if it acts to increase capital?s share of income.

Keywords: inequality; heterogeneity; zero-growth (search for similar items in EconPapers)
JEL-codes: D31 D33 D52 E21 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2014-12-03
New Economics Papers: this item is included in nep-gro, nep-mac and nep-pbe
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