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The Piketty Transition

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Abstract

We study the effects on inequality of a \"Piketty transition\" to zero growth. In a model with a worker-capitalist dichotomy, we show first that the relationship between inequality (measured as a ratio of incomes for the two types) and growth is complicated; zero growth can raise or lower inequality, depending on parameters. Extending our model to include idiosyncratic wage risk we show that growth has quantitatively negligible effects on inequality, and the effect is negative. Finally, following Piketty?s thought experiment, we study how the transition might occur without declining returns; here, we find inequality decreases substantially if financial innovation acts to reduce idiosyncratic return risk, and does not change much at all if it acts to increase capital?s share of income.

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  • Daniel R. Carroll & Eric R. Young, 2014. "The Piketty Transition," Working Papers (Old Series) 1432, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:1432
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    1. Inequality and zero growth
      by nawmsayn in ZeeConomics on 2015-02-01 17:56:26

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    Cited by:

    1. Fischer, Thomas, 2019. "Determinants of Wealth Inequality and Mobility in General Equilibrium," Working Papers 2019:22, Lund University, Department of Economics.

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    More about this item

    Keywords

    inequality; heterogeneity; zero-growth;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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