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Inequality, Technical Change or Leverage?

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  • Goren, Amir

Abstract

Exploring the determinants of growing income inequality, I show how constant capital income shares and inequality can be explained without technical change. I show why despite the fact that technical change is capital augmenting, rather than labor augmenting, it may not be sufficient to explain the last few decades of growing capital share of income and inequality due to the balancing mechanism of depreciation. Finally, I show how the growth of leverage, which coincided with the growth of inequality, can explain the growth of capital share of income and inequality. I introduce a simple model of leverage and business cycle and show how leverage is justified by more leverage and how depressed interest rate allows leveraging and inequality growth to persist.

Suggested Citation

  • Goren, Amir, 2016. "Inequality, Technical Change or Leverage?," MPRA Paper 72983, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:72983
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    References listed on IDEAS

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    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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