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Wealth Inequality, or r-g, in the Economic Growth Model

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  • Ryoji HIRAGUCHI

Abstract

We investigate a simple continuous-time overlapping generations model with a neoclassical production function and technological progress. We demonstrate that the degree of wealth inequality is positively related to the difference between the real interest rate r and the growth rate of income per capita g , and if g falls, the r-g gap widens and inequality worsens. We also argue that a wealth tax reduces the wealth inequality. All of these results are consistent with the famous predictions advanced by Thomas Piketty in Capital in the Twenty-First Century (2014). We next investigate consumption tax and find that it enhances capital accumulation and reduces r-g , and thus wealth inequality.

Suggested Citation

  • Ryoji HIRAGUCHI, 2015. "Wealth Inequality, or r-g, in the Economic Growth Model," Discussion papers 15117, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:15117
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    References listed on IDEAS

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    4. Shuhei Aoki & Makoto Nirei, 2016. "Pareto Distribution of Income in Neoclassical Growth Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 20, pages 25-42, April.
    5. Charles I. Jones, 2015. "Pareto and Piketty: The Macroeconomics of Top Income and Wealth Inequality," Journal of Economic Perspectives, American Economic Association, vol. 29(1), pages 29-46, Winter.
    6. Giuseppe Bertola & Reto Foellmi & Josef Zweimüller, 2005. "Income Distribution in Macroeconomic Models," Economics Books, Princeton University Press, edition 1, number 8058, December.
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