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Capital, growth and inequality in Piketty's approach. Is it able to explain level and changes of inequality in the personal income distribution?

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  • Renata Targetti Lenti

Abstract

The paper is a critical review of Piketty’s book “Capital in the XXI Century”. The book provides a general theory of the functioning of a capitalist economy. Piketty’s intent is to link the functional and personal income distribution to the economic growth. The setting can be called "classic". However Piketty is not interested in explaining the role of capital accumulation on economic growth, but instead the inverse relation, that is the role of economic growth on the increase of the returns to capital, on the concentration of wealth and of income’s inequality in capitalist economies. In this review Piketty’s framework is discussed arguing that it can explain only partially level and changes of the personal income distribution. The factors which explain the dynamic of wealth (accumulation of capital) are different from those which explain the dynamics of labor income (demand and supply of skills and education, technology). It is very difficult, therefore, to reach a consensus on a shared theory of personal income distribution. Piketty links in a very innovative way the returns from capital r to the rate of growth of national income g comparing them in a macroeconomic framework. He claims that when returns on capital rise more quickly than the overall economy and taxes on capital remain low, a vicious circle of ever-growing dynastic wealth, and growing inequality, takes place. However the fact that r exceeds g explains nothing about the rise in inequality. An analysis of the generation of personal incomes, and consequently of inequality, requires a suitable framework that links personal endowments to incomes. At the end I will indicate some steps that could be required by framework suitable to analyze the personal income generation process.

Suggested Citation

  • Renata Targetti Lenti, 2016. "Capital, growth and inequality in Piketty's approach. Is it able to explain level and changes of inequality in the personal income distribution?," Working papers 40, Società Italiana di Economia Pubblica.
    • Handle: RePEc:ipu:wpaper:40
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Capitalism; Inequality; Income Distribution;
    All these keywords.

    JEL classification:

    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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