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Secular Increase in Economic Inequality Accompanying a Constant Output/Capital Ratio

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  • Harashima, Taiji

Abstract

Many empirical studies have concluded that the level of economic inequality has increased in many countries since the mid-twentieth century, but the output/capital ratio has barely changed during the same period. This secular increase in economic inequality indicates the existence of some essential heterogeneity among households. In this paper, I attempt to uncover this essential heterogeneity by focusing on rate of time preference (RTP) and persistent economic rents. I find that if heterogeneous RTP were the cause behind the observed secular increase in economic inequality, it could not coexist with a constant output/capital ratio. On the other hand, I find that heterogeneous persistent economic rent can coexist simultaneously with both phenomena and consider it the most likely the cause behind the increase in economic inequality accompanied by a constant output/capital ratio. I support this conclusion with both a theoretical analysis and numerical examinations.

Suggested Citation

  • Harashima, Taiji, 2023. "Secular Increase in Economic Inequality Accompanying a Constant Output/Capital Ratio," MPRA Paper 117705, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:117705
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    References listed on IDEAS

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    More about this item

    Keywords

    Output/capital ratio; Heterogeneity; Inequality; Rents; Time preference;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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