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When are There Natural Limits on Inequality?

Author

Listed:
  • Scott S. Condie

    (Department of Economics, Brigham Young University)

  • Richard W. Evans

    (Department of Economics, Brigham Young University)

  • Kerk L. Phillips

    (Department of Economics, Brigham Young University)

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.

Suggested Citation

  • Scott S. Condie & Richard W. Evans & Kerk L. Phillips, 2014. "When are There Natural Limits on Inequality?," BYU Macroeconomics and Computational Laboratory Working Paper Series 2014-10, Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory.
    • Handle: RePEc:byu:byumcl:201410
    as

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    File URL: https://docs.google.com/file/d/0B6KGaihAO5TJSjVJNzQwcDY1anc/edit
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    References listed on IDEAS

    as
    1. Odran Bonnet & Pierre-Henri Bono & Guillaume Chapelle & Etienne Wasmer, 2014. "Does housing capital contribute to inequality? A comment on Thomas Piketty’s Capital in the 21st Century," Sciences Po Economics Discussion Papers 2014-07, Sciences Po Departement of Economics.
    2. Kent Smetters, 2003. "The (Interesting) Dynamic Properties of the Neoclassical Growth Model with CES Production," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 697-707, July.
    3. repec:hal:spmain:info:hdl:2441/30nstiku669glbr66l6n7mc2oq is not listed on IDEAS
    4. McCain, Roger, 2014. "The Piketty Curve and the Elasticity of Substitution," School of Economics Working Paper Series 2014-8, LeBow College of Business, Drexel University.
    5. repec:hal:wpspec:info:hdl:2441/30nstiku669glbr66l6n7mc2oq is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Piketty; inequality; wealth tax; welfare;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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