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Stefan Ederer, Miriam Rehm
Making sense of Piketty's "fundamental laws" in a Post-Keynesian framework: the transitional dynamics of wealth inequality
Review of Keynesian Economics, 2020, (2), S.195-219, https://doi.org/10.4337/roke.2020.02.04
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 percent, 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.
JEL-Codes:C63, D31, E12, E21
Keywords:Post-Keynesian; model; wealth; saving; inequality; Piketty; simulation
Forschungsbereich:Makroökonomie und europäische Wirtschaftspolitik