Wealth Inequality in the Long Run: A Schumpeterian Growth Perspective
34 Pages Posted: 31 Jul 2018
Date Written: July 30, 2018
Abstract
This paper extends Piketty’s analysis of the wealth-income ratio used as a proxy for wealth inequality, to allow for innovation. Drawing on a Schumpeterian (R&D-based) growth model that incorporates both tangible and intangible capital and using historical data for 21 OECD countries, we find the wealth-income ratio to be significantly and positively related to R&D intensity and the fixed capital investment ratio, but negatively related to income growth. Accounting for the innovation-induced counteracting growth-effect on the wealth-income ratio, we show that the net effect of R&D on wealth inequality is positive.
Keywords: Wealth-income Ratio, Piketty's Second Law, Schumpeterian Growth
JEL Classification: D30, E10, E20, O30, O40
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