Wealth Inequality, or r-g, in the Economic Growth Model

We investigate a simple continuous-time overlapping generations model with a neoclassical production function and technological progress. We demonstrate that the degree of wealth inequality is positively related to the difference between the real interest rate r and the growth rate of income per capita g, and if g falls, the r-g gap widens and inequality worsens. We also argue that a wealth tax reduces the wealth inequality. All of these results are consistent with the famous predictions advanced by Thomas Piketty in Capital in the Twenty-First Century (2014). We next investigate consumption tax and find that it enhances capital accumulation and reduces r-g, and thus wealth inequality.

Published: Hiraguchi, Ryoji, 2019. "Wealth inequality, or r - g, in the economic growth model," Macroeconomic Dynamics, Vol. 23(02), pp. 479-488
https://www.cambridge.org/core/journals/macroeconomic-dynamics/article/wealth-inequality-or-r-g-in-the-economic-growth-model/22DE74706C45610F1443418308DEFA01