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Assessing Piketty’s second law of capitalism

Author

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  • Jakob B Madsen
  • Antonio Minniti
  • Francesco Venturini

Abstract

This paper assesses Piketty’s second fundamental law of capitalism to investigate patterns and determinants of wealth inequality over the last century and a half. We first discuss the foundations of this theory on the basis of the most popular growth models, and then perform a long-run regression analysis of wealth inequality using Piketty and Zucman’s data and a new historical data set for the OECD countries covering the period since 1870 onwards. We find that the wealth-to-income ratio, β, is significantly related to the ratio between the saving rate, s, and the rate of income growth, g. The estimated coefficient for the s/g ratio ranges from 0.05 to 0.18, depending on the specification, while the theory predicts a unitary value. It is also shown that the wealth-to-income ratio responds to the variations in income growth much more than to variations in the saving rate.

Suggested Citation

  • Jakob B Madsen & Antonio Minniti & Francesco Venturini, 2018. "Assessing Piketty’s second law of capitalism," Oxford Economic Papers, Oxford University Press, vol. 70(1), pages 1-21.
    • Handle: RePEc:oup:oxecpp:v:70:y:2018:i:1:p:1-21.
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    File URL: http://hdl.handle.net/10.1093/oep/gpx040
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    Cited by:

    1. Arthur Jacobs, 2023. "Capitalist-Worker Wealth Distribution in a Task-Based Model of Automation," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 23/1064, Ghent University, Faculty of Economics and Business Administration.
    2. Nakajima, Tetsuya, 2023. "How does the middle class vanish? The importance of redistribution targets," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 560-568.
    3. James B. Davies & Rodrigo Lluberas & Daniel Waldenström & James Davies, 2024. "Long-Term Trends in the Distribution of Wealth and Inheritance," CESifo Working Paper Series 11183, CESifo.

    More about this item

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General
    • P10 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - General

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