Wealth and Income Inequalities ← → r > g

Abstract

Piketty’s Capital in the Twenty-First Century posits the return r on capital to be larger than the economic growth rate g as a main driver of inequalities. This article points out the circumstances under which the reverse inference holds. We show that increasing inequality promotes increasing gap r-g, and vice-versa, because capital is a cumulative quantity that claims a finite fraction of the total output in the presence of fractional consumption of the return on capital. However economies do exist for which large inequalities tend to curb r-g, thus proving that r > g does not always lead to an endless inequality spiral.

Keywords: inequality, return on capital, growth rate, labor, national output, demographics

JEL Classification: D63, E22, E00, P10