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Testing Piketty’s Hypothesis on the Drivers of Income Inequality

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Testing Piketty’s Hypothesis on the Drivers of Income Inequality

Evidence from Panel VARs with Heterogeneous Dynamics

IMF,

5 min read
5 take-aways
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A new study challenges the findings of Capital in the Twenty-First Century.

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Editorial Rating

7

getAbstract Rating

  • Innovative

Recommendation

Income inequality is a concern around the world. Experts and policy makers from both the right and the left vigorously debate what, if anything, to do about it. Economist Thomas Piketty offered a big-picture analysis of the issue in his best-selling Capital in the Twenty-First Century, in which he found that wealth begets greater wealth, worsening inequality. Economist Carlos Góes attempts to tease out the validity of Piketty’s thesis and arrives at a different conclusion. getAbstract recommends his innovative but esoteric effort to ground Piketty’s historical observations in contemporary data.

Summary

Thomas Piketty’s innovative and influential book Capital in the Twenty-First Century has had a sizable impact on economic research. Its premise is that “whenever the difference between the returns on capital (r) and the output growth rate (g) increases, the share of capital in national income increases.” As capital returns are much more unequally allocated than wage income across a population, this rising difference adds to inequality. While this argument seems reasonable, and Piketty and his colleagues provide considerable historical data to support his thesis, the work doesn’t offer...

About the Author

Carlos Góes is a research analyst at the International Monetary Fund.

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