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

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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.

Suggested Citation

  • Philippe De Donder & John E. Roemer, 2016. "The Dynamics of Capital Accumulation in the US: Simulations after Piketty," Cowles Foundation Discussion Papers 1998R, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:1998r
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    1. De Donder Philippe & Roemer John E., 2016. "An allegory of the political influence of the top 1%," Business and Politics, De Gruyter, vol. 18(1), pages 85-96, April.

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    More about this item

    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;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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