A Neoclassical Model of Pension Capitalism in Which r > g

Abstract

Thomas Piketty claims that when the rate of return on wealth exceeds the rate of growth, income inequality increases. This paper builds on previous research in the literature to demonstrate the incorrectness of Piketty’s thesis and to suggest an amendment to it. A neoclassical overlapping generations model is developed in which the rate of growth is positive, the distribution of income does not become more unequal in a steady state, and the real rate of return exceeds the rate of growth. A steady state is inconsistent, however, with the real rate of return on non-industrial capital exceeding the rate of growth.

Keywords: Income and its Distribution, Income Distribution, General Aggregative Models, Neoclassical, General Equilibrium

JEL Classification: D31, O15, E13, D5