Economics Dictionary of ArgumentsHome
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| Piketty Formula: The Piketty Formula refers to r > g, where the return on capital (r) exceeds economic growth (g). This inequality drives wealth accumulation for capital owners, increasing inequality over time. Piketty’s formula underpins his argument that without intervention, capitalism naturally leads to rising wealth concentration, necessitating progressive taxation and redistribution policies. See also Thomas Piketty, Piketty hypothesis, Piketty’s Laws, Taxation, Capital Gains Tax._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Clemens Fuest on Piketty Formula - Dictionary of Arguments
Fuest I 3 Piketty Model/Fuest/Peichl/Waldenström: The so-called r - g model of Piketty (2014)(1), which relates the difference between the rate of return on capital, r, and the rate of income growth, g, to the level of economic inequality, (…) [i]n its simplest characterisation, (…) says that when existing (‘old’) capital grows faster than new capital is created out of accumulated incomes, then already relatively rich capital owners will become even richer relative to the others not holding capital, and thus inequality will increase. VsPiketty: From a theoretical perspective it is clear r > g is neither necessary nor sufficient for inequality to increase. It is not necessary because inequality may increase due to other reasons like, for instance, inequality of labour income, which has been a key driver of the recent surge in income inequality in the United States. It is not sufficient either, because capitalists may earn much, but save little. MankivVsPiketty: As (…) emphasised by Mankiw (2015)(2), r > g may not lead to increasing inequality because capital income taxes may reduce the net return to capital below g or because capital owners consume part of their income. If capital owners have enough children, wealth concentration will fall as they leave their wealth to the next generation.1 In addition, even if capital owners save a lot, their income cannot grow indefinitely. While the interest rate may indeed be permanently higher than the growth rate of GDP, it is obvious that capital income cannot permanently grow faster than GDP. The marginal productivity will also decline as the capital intensity of production increases.* Fuest I 6 Inequality/Fuest/Peichl/Waldenström: On the whole, the results (…) offer some tentative support for the r - g model as proposed by Piketty (2014)(1) and its proposed links between the r-g differential and wealth inequality. Fuest I 7 Problem: Given the considerable problems at hand related to measurement, data availability and statistical specification, much more effort is naturally needed before we can begin to speak about any stable relationships in these outcomes. Furthermore, the relationship between top wealth shares, financial sector development and economic growth reveals nothing about the direction of causality. For instance, it is perfectly possible that rising wealth concentration causes stronger growth in the financial sector. We therefore conclude that more research is needed to settle the issues at hand, >Capital tax/Piketty. * However, evidence suggests that the number of children decreases with income (Jones and Tertilt 2006)(3). The average number of children per family is below 2 for rich households. Some basics for Piketty: >Cambridge Capital Controversy, >Geoffrey C. Harcourt, >Capital reversing, >Capital/Joan Robinson, >Exploitation/Robinson, >Reswitching/Robinson, >Reswitching/Sraffa, >Reswitching/Economic Theories, >Neo-Keynesianism, >Neo-Neoclassical Theories. 1. Piketty, T. (2014), Capital in the 21st Century, Cambridge, MA: Belknap 2. Mankiw, Greg (2015). “Yes, r > g. So What?” In: American Economic Review: Papers & Proceedings 105.5, pp. 43–47. doi: 10.1257/aer.p20151059. 3. Jones, L.E. and M. Tertilt (2008). “An Economic History of Fertility in the United States: 1826–1960”, in: Rupert, P. (ed.), Frontiers of Family Economics, Bingley, West Yorkshire: Emerald Group Publishing Limited. Clemens Fuest, Andreas Peichl and Daniel Waldenström. Piketty’s r-g Model: Wealth Inequality and Tax Policy. https://www.ifo.de/DocDL/forum1-15-focus1.pdf_____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Fuest I Clemens Fuest (ed.) George R. Zodrow Critical Issues in Taxation and Development (Cesifo Seminar Series) Cambridge, MA 2013 |
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