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Increasing Capital Income Share and its Effect on Personal Income Inequality

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  • Branko Milanovic

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Abstract

Piketty's r>g implies an increase in capital-output ratio and in the share of capital income in net output. But it still does not guarantee the increase in personal income inequality. We derive the conditions for the "pass-through" of the rise in the share of capital income to greater personal income inequality. They have to do with the concentration of income from capital and its association with higher overall income. A key way to breaking the "transmission" into higher personal inequality is to diversify ownership of capital ("people's capitalism").

Suggested Citation

  • Branko Milanovic, 2016. "Increasing Capital Income Share and its Effect on Personal Income Inequality," LIS Working papers 663, LIS Cross-National Data Center in Luxembourg.
  • Handle: RePEc:lis:liswps:663
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    References listed on IDEAS

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    1. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 61-103.
    2. Atkinson,Anthony B. & Lakner,Christoph & Atkinson,Anthony B. & Lakner,Christoph, 2017. "Capital and labor : the factor income composition of top incomes in the United States, 1962-2006," Policy Research Working Paper Series 8268, The World Bank.
    3. A. B. Atkinson, 2009. "Factor shares: the principal problem of political economy?," Oxford Review of Economic Policy, Oxford University Press, vol. 25(1), pages 3-16, Spring.
    4. Ng, Yew-Kwang, 2015. "Is an increasing capital share under capitalism inevitable?," European Journal of Political Economy, Elsevier, vol. 38(C), pages 82-86.
    5. Erik Bengtsson & Daniel Waldenstršm, 2016. "Capital shares and income inequality: Evidence from the long run," Working Papers 0092, European Historical Economics Society (EHES).
    6. repec:oup:qjecon:v:129:y:2013:i:1:p:61-103 is not listed on IDEAS
    7. Margaret M. Jacobson & Filippo Occhino, 2012. "Labor's declining share of income and rising inequality," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sept.
    8. Bengtsson, Erik & Waldenström, Daniel, 2015. "Capital Shares and Income inequality: Evidence from the Long Run," IZA Discussion Papers 9581, Institute for the Study of Labor (IZA).
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution

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