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New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part IV: Land and Credit


  • Joseph E. Stiglitz


A significant amount of the increase in the wealth income ratio in recent decades is due to an increase in the value of land. We present a series of models that explain why land prices may have increased. These models help us understand the increase in both the wealth income ratio and wealth inequality. One model focuses on certain locations as being positional good. In another, we show that land bubbles are a natural part of market economies, and that on “bubble paths”, wealth may increase, even as the real wealth of the economy diminishes. Focusing on long run equilibrium, we show that a tax on the returns on land (including capital gains) can lead to higher incomes and less inequality. We show the links between the increases in land values and the financial system, demonstrating how changes in the rules governing that sector and the conduct of monetary policy may increase inequality. Given the large amount of life cycle savings, the traditional division of society into the owners of capital and workers or creditors and debtors may no longer provide the most insights for understanding the impact of policies on distribution. The relevant division is between capitalists, who pass on their wealth from generation to generation, and workers, and between the owners of equity and the holders of debt instruments. These distinctions are important for tax, financial and monetary policy. In our simple model, a lowering of interest rates benefits holders of equity— the capitalists—but hurts holders of government bonds, disproportionately life-cycle savers, and thus increases inequality. Similarly, a lowering of collateral requirements or of banks’ capital adequacy requirements does not result in an increase in the overall efficiency of the economy, but leads to more inequality.

Suggested Citation

  • Joseph E. Stiglitz, 2015. "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part IV: Land and Credit," NBER Working Papers 21192, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21192
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    References listed on IDEAS

    1. Galbraith, James K., 2012. "Inequality and Instability: A Study of the World Economy Just Before the Great Crisis," OUP Catalogue, Oxford University Press, number 9780199855650.
    2. F. H. Hahn, 1966. "Equilibrium Dynamics with Heterogeneous Capital Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 80(4), pages 633-646.
    3. Karl Shell & Joseph E. Stiglitz, 1967. "The Allocation of Investment in a Dynamic Economy," The Quarterly Journal of Economics, Oxford University Press, vol. 81(4), pages 592-609.
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    Blog mentions

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    1. New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part IV: Land and Credit
      by maximorossi in NEP-LTV blog on 2015-06-04 18:56:59


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    Cited by:

    1. Joseph E. Stiglitz, 2016. "The Theory of Credit and Macro-economic Stability," NBER Working Papers 22837, National Bureau of Economic Research, Inc.
    2. Joseph E. Stiglitz, 2017. "Macro-economic Management in an Electronic Credit/Financial System," NBER Working Papers 23032, National Bureau of Economic Research, Inc.
    3. Frank Cowell & Dirk Van de gaer, 2017. "Condorcet was Wrong, Pareto was Right: Families, Inheritance and Inequality," STICERD - Public Economics Programme Discussion Papers 34, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    4. Gianni La Cava, 2016. "Housing prices, mortgage interest rates and the rising share of capital income in the United States," BIS Working Papers 572, Bank for International Settlements.
    5. Carpantier, Jean-Francois & Olivera, Javier & Van Kerm, Philippe, 2018. "Macroprudential policy and household wealth inequality," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 262-277.
    6. Corneo, Giacomo, 2017. "Ein Staatsfonds, der eine soziale Dividende finanziert," Discussion Papers 2017/13, Free University Berlin, School of Business & Economics.
    7. Fischer, Thomas, 2017. "Thomas Piketty and the rate of time preference," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 111-133.
    8. repec:eee:jimfin:v:85:y:2018:i:c:p:168-186 is not listed on IDEAS
    9. Corneo, Giacomo, 2015. "Inequality, Public Wealth, and the Federal Shareholder," CEPR Discussion Papers 10920, C.E.P.R. Discussion Papers.
    10. Luigi Bonatti, 2017. "Land, Housing, Growth and Inequality," DEM Working Papers 2017/01, Department of Economics and Management.
    11. Ugo Pagano, 2016. "Knowledge as a Global Common and the Crisis of the Learning Economy," Department of Economics University of Siena 743, Department of Economics, University of Siena.
    12. Furceri, Davide & Loungani, Prakash & Zdzienicka, Aleksandra, 2018. "The effects of monetary policy shocks on inequality," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 168-186.
    13. Berman, Yonatan & Shapira, Yoash, 2017. "Revisiting r>g—The asymptotic dynamics of wealth inequality," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 467(C), pages 562-572.
    14. Stiglitz, Joseph E., 2016. "America's Great Malaise and what to do about it," Journal of Policy Modeling, Elsevier, vol. 38(4), pages 639-648.
    15. Jill Trinh, 2017. "The Pareto Distribution And Its Relationship To Piketty’S Third Fundamental Law Of Capitalism," Economics Discussion / Working Papers 17-11, The University of Western Australia, Department of Economics.
    16. Joseph E Stiglitz, 2018. "Where modern macroeconomics went wrong," Oxford Review of Economic Policy, Oxford University Press, vol. 34(1-2), pages 70-106.
    17. Stiglitz, Joseph E., 2018. "Pareto efficient taxation and expenditures: Pre- and re-distribution," Journal of Public Economics, Elsevier, vol. 162(C), pages 101-119.
    18. Mabrouk, Mohamed, 2017. "Is Rentier Capitalism That Bad? Rent, Efficiency and Inequality Dynamics," MPRA Paper 81565, University Library of Munich, Germany.
    19. Ugo Pagano & Maria Alessandra Rossi, 2016. "The knowledge economy, the crash and the depression," Department of Economics University of Siena 741, Department of Economics, University of Siena.
    20. Gianni La Cava, 2016. "Housing Prices, Mortgage Interest Rates and the Rising Share of Capital Income in the United States," RBA Research Discussion Papers rdp2016-04, Reserve Bank of Australia.
    21. Luigi Bonatti, 2016. "Anemic economic growth in advanced economies: structural factors and the impotence of expansionary macroeconomic policies," DEM Working Papers 2016/11, Department of Economics and Management.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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