Bequests, Imperfections in Factor Markets, and Long-Run Inequality: A Theoretical Assessment of Piketty

40 Pages Posted: 9 Dec 2019

See all articles by Andrés Álvarez

Andrés Álvarez

Universidad de los Andes - Department of Economics

Camilo Gomez

Universidad de los Andes, Colombia - Department of Economics

Hernando Zuleta

Universidad de los Andes, Colombia

Date Written: December 6, 2019

Abstract

The book Capital in the Twenty-First Century by Thomas Piketty (2014) has renewed the public and scholar debate about wealth and income inequality. Theoretical critiques have focused their attention on a regularity pointed out by the author, namely, the growth rate of the economy is lower than the interest rate, r > g. However, two other important insights are key to understand the persistence of inequality: bequests and differences between factor prices and the marginal productivity of factors. We present an OLG model that incorporates these two elements and explores under which circumstances inequality between two social groups, rich dynasties and poor dynasties, is a long-term equilibrium result with economic growth. The model considers two goods, one essential and the other non-essential. We find that inequality between rich and poor dynasties is a long-term equilibrium when (i) the marginal productivity of labor of the essential good is bounded from above and the marginal productivity of capital in the non-essential good sector is bounded from below by a positive value; and (ii) factor remunerations are not determined by the standard economic forces of marginal product.

Keywords: Inequality, growth, bequests, factor shares, Piketty

JEL Classification: D31, D33, O41

Suggested Citation

Alvarez, Andres and Gomez, Camilo and Zuleta, Hernando, Bequests, Imperfections in Factor Markets, and Long-Run Inequality: A Theoretical Assessment of Piketty (December 6, 2019). Documento CEDE No. 2019-45, Available at SSRN: https://ssrn.com/abstract=3499833 or http://dx.doi.org/10.2139/ssrn.3499833

Andres Alvarez (Contact Author)

Universidad de los Andes - Department of Economics ( email )

Calle 19A No. 1-37 Este
Bloque W, oficina W-816.
Bogota, D. C. 110311
Colombia
+57 1 3394949 (Phone)

HOME PAGE: http://economia.uniandes.edu.co/alvarez

Camilo Gomez

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

Hernando Zuleta

Universidad de los Andes, Colombia ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

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