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Testing Piketty’s Hypothesis on the Drivers of Income Inequality: Evidence from Panel VARs with Heterogeneous Dynamics

Author

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  • Carlos Góes

Abstract

Thomas Piketty's Capital in the Twenty-First Century puts forth a logically consistent explanation for changes in income and wealth inequality patterns. However, while rich in data, the book provides no formal empirical testing for its theoretical causal chain. In this paper, I build a set of Panel SVAR models to check if inequality and capital share in the national income move up as the r-g gap grows. Using a sample of 19 advanced economies spanning over 30 years, I find no empirical evidence that dynamics move in the way Piketty suggests. Results are robust to several alternative estimates of r-g.

Suggested Citation

  • Carlos Góes, 2016. "Testing Piketty’s Hypothesis on the Drivers of Income Inequality: Evidence from Panel VARs with Heterogeneous Dynamics," IMF Working Papers 2016/160, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2016/160
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    1. N. Gregory Mankiw, 2015. "Yes, r > g. So What?," American Economic Review, American Economic Association, vol. 105(5), pages 43-47, May.
    2. Maura Francese & Mr. Carlos Mulas-Granados, 2015. "Functional Income Distribution and Its Role in Explaining Inequality," IMF Working Papers 2015/244, International Monetary Fund.
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    Cited by:

    1. Móczár, József, 2017. "Ergodic Versus Uncertain Financial Processes – Part II: Neoclassical and Institutional Economics," Public Finance Quarterly, Corvinus University of Budapest, vol. 62(4), pages 478-501.
    2. Škare, Marinko & Soriano, Domingo Riberio & Porada-Rochoń, Małgorzata, 2021. "Impact of COVID-19 on the travel and tourism industry," Technological Forecasting and Social Change, Elsevier, vol. 163(C).
    3. Jurgen Spaanderman, 2018. "An urgent call to get better prepared for unexpected events," DNB Occasional Studies 1602, Netherlands Central Bank, Research Department.
    4. Konstantin A. Kholodilin & Sebastian Kohl, 2021. "Rent Price Control – Yet Another Great Equalizer of Economic Inequalities?: Evidence from a Century of Historical Data," Discussion Papers of DIW Berlin 1927, DIW Berlin, German Institute for Economic Research.
    5. Fan, Xuecheng & Xu, Zeshui & Qin, Yong & Škare, Marinko, 2023. "Quantifying the short- and long-run impact of inflation-related price volatility on knowledge asset investment," Journal of Business Research, Elsevier, vol. 165(C).
    6. Aramish Altaf Alvi & Abid Raza Khan & Tariq Hussain, 2024. "Can Piketty’s Interest Rate – Growth Rate Framework Explain Increasing Income Inequality in Pakistan?," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(1), pages 821-829.
    7. Zakaria Chtouki, 2020. "Income inequities: Diagnosis and theoretical challenges," Post-Print hal-03198224, HAL.
    8. Nauro F. Campos & Corrado Macchiarelli & Fotios Mitropoulos, 2024. "Okun in the Euro: New Evidence from Structural Okun Law’s Estimates for the Euro Area, 1979-2019," IMF Working Papers 2024/172, International Monetary Fund.
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    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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