Making sense of Piketty's 'Fundamental Laws' in a Post-Keynesian Framework: The transitional dynamics of wealth inequality

Stefan Ederer and Miriam Rehm

No 35-2018, FMM Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

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%, 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)
Pages: 28 pages
Date: 2018
New Economics Papers: this item is included in nep-cmp, nep-his, nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Making sense of Piketty's 'fundamental laws' in a Post-Keynesian framework: the transitional dynamics of wealth inequality (2020)
Working Paper: Making Sense of Piketty’s ‘Fundamental Laws’ in a Post-Keynesian Framework: The Transitional Dynamics of Wealth Inequality (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:imk:fmmpap:35-2018

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