The Dynamics of Capital Accumulation in the US: Simulations after Piketty

39 Pages Posted: 24 Jun 2016

See all articles by Philippe De Donder

Philippe De Donder

CNRS, Toulouse School of Economics

John E. Roemer

Yale University - Department of Political Science; Yale University - Cowles Foundation

Multiple version iconThere are 3 versions of this paper

Date Written: June 21, 2016

Abstract

We develop a dynamic model where a competitive firm produces a single good from labor and capital, with market clearing rates of return. Individuals are heterogeneous in skills, with an endowment in capital/wealth increasing in skill. Individuals aspire to a standard consumption level, with a constant marginal propensity to consume out of income above this level. We define a steady state of this model as an equilibrium where factor returns and wealth shares remain constant. We calibrate the model to the US economy and obtain that a steady state exists. We then study three variants of the model: one with a higher rate of return for large capitals than for smaller ones, one with social mobility, and one with a capital levy Financing a lump sum transfer. In all variants, a steady state exists. We also run the model starting from the 2012 US wealth distribution and obtain convergence to the steady state in the basic model as well as in all variants. Convergence takes a long time and is non monotone, with factor returns and wealth shares moving away from their steady state values for long periods.

Keywords: Piketty, dynamics of wealth accumulation, convergence to steady state, spirit of capitalism, differential rates of return to capital, intergenerational mobility, capital levy, US calibration

JEL Classification: D31, D58, E37

Suggested Citation

De Donder, Philippe and Roemer, John E., The Dynamics of Capital Accumulation in the US: Simulations after Piketty (June 21, 2016). Cowles Foundation Discussion Paper No. 1998R. Available at SSRN: https://ssrn.com/abstract=2799893 or http://dx.doi.org/10.2139/ssrn.2799893

Philippe De Donder

CNRS, Toulouse School of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

HOME PAGE: http://https://www.tse-fr.eu/people/philippe-de-donder

John E. Roemer (Contact Author)

Yale University - Department of Political Science ( email )

Box 208269
New Haven, DC 06520-8269
United States
203-432-5249 (Phone)
203-432-6196 (Fax)

HOME PAGE: http://pantheon.yale.edu/~jer39/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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