IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/21189.html
   My bibliography  Save this paper

New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part I. The Wealth Residual

Author

Listed:
  • Joseph E. Stiglitz

Abstract

The paper identifies, and then resolves, a number of seeming puzzles in a newly identified set of stylized facts entailing movements in factor returns and shares and the wealth-income ratio. Standard data on savings cannot be reconciled with the increase in the wealth-income ratio: there is a wealth residual. An important component of this is associated with rents: land rents, exploitation rents, and returns on intellectual property. Nor can these stylized facts be reconciled with a standard neoclassical model, focusing on labor and capital, even taking into account technological change (including skill-biased technological change), with appropriately defined aggregates. Explaining why the concepts of “capital” and “wealth” are distinct, we show that appropriately defined aggregates for wealth may be (and in the case of some countries appear to be) moving in opposite directions. We identify some of the factors that may have contributed to the increase in rents and the divergence between wealth and capital. Subsequent Parts of this paper will investigate some of these factors in detail and relate them to changes in inequality.

Suggested Citation

  • Joseph E. Stiglitz, 2015. "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part I. The Wealth Residual," NBER Working Papers 21189, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:21189
    Note: POL
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w21189.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Christopher D Carroll, 1997. "Why Do the Rich Save So Much?," Economics Working Paper Archive 388, The Johns Hopkins University,Department of Economics.
    2. Edward Wolff & Maury Gittleman, 2014. "Inheritances and the distribution of wealth or whatever happened to the great inheritance boom?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(4), pages 439-468, December.
    3. Martin Guzman & Joseph E Stiglitz, 2021. "Pseudo-wealth and Consumption Fluctuations [Emerging market business cycles: the cycle is the trend]," The Economic Journal, Royal Economic Society, vol. 131(633), pages 372-391.
    4. Thomas Piketty & Emmanuel Saez & Stefanie Stantcheva, 2014. "Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 230-271, February.
    5. Abhijit Banerjee & Sendhil Mullainathan, 2010. "The Shape of Temptation: Implications for the Economic Lives of the Poor," Working Papers id:2484, eSocialSciences.
    6. Luigi L. Pasinetti, 1962. "Rate of Profit and Income Distribution in Relation to the Rate of Economic Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 29(4), pages 267-279.
    7. Thomas Piketty & Gabriel Zucman, 2014. "Capital is Back: Wealth-Income Ratios in Rich Countries 1700–2010," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1255-1310.
    8. Griliches, Zvi, 1969. "Capital-Skill Complementarity," The Review of Economics and Statistics, MIT Press, vol. 51(4), pages 465-468, November.
    9. Edward N. Wolff & Maury Gittleman, 2011. "Inheritances and the Distribution of Wealth or Whatever Happened to the Great Inheritance Boom? Results from the SCF and PSID," NBER Working Papers 16840, National Bureau of Economic Research, Inc.
    10. Saez, Emmanuel & Zucman, Gabriel, 2014. "Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data," CEPR Discussion Papers 10227, C.E.P.R. Discussion Papers.
    11. Richard J. Arnott & Joseph E. Stiglitz, 1979. "Aggregate Land Rents, Expenditure on Public Goods, and Optimal City Size," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 471-500.
    12. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
    13. Galbraith, James K., 2012. "Inequality and Instability: A Study of the World Economy Just Before the Great Crisis," OUP Catalogue, Oxford University Press, number 9780199855650.
    14. Charles I. Jones & Paul M. Romer, 2010. "The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 224-245, January.
    15. Edward Wolff & Maury Gittleman, 2014. "Inheritances and the distribution of wealth or whatever happened to the great inheritance boom?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(4), pages 439-468, December.
    16. Olivier Giovannoni, 2014. "What Do We Know About the Labor Share and the Profit Share? Part III: Measures and Structural Factors," Economics Working Paper Archive wp_805, Levy Economics Institute.
    17. Olivier Giovannoni, 2014. "What Do We Know About the Labor Share and the Profit Share? Part II: Empirical Studies," Economics Working Paper Archive wp_804, Levy Economics Institute.
    18. Young, Andrew T., 2013. "U.S. Elasticities Of Substitution And Factor Augmentation At The Industry Level," Macroeconomic Dynamics, Cambridge University Press, vol. 17(4), pages 861-897, June.
    19. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39(2), pages 137-137.
    20. Mallick, Debdulal, 2007. "The role of elasticity of substitution in economic growth: a cross-country test of the de La Grandville Hypothesis," Working Papers eco_2007_04, Deakin University, Department of Economics.
    21. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-1189, December.
    22. Olivier Giovannoni, 2014. "What Do We Know About the Labor Share and the Profit Share? Part I: Theories," Economics Working Paper Archive wp_803, Levy Economics Institute.
    23. F. A. Lutz, 1961. "The Theory of Capital," International Economic Association Series, Palgrave Macmillan, number 978-1-349-08452-4 edited by D. C. Hague, June.
    24. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fischer, Thomas, 2017. "Thomas Piketty and the rate of time preference," Journal of Economic Dynamics and Control, Elsevier, vol. 77(C), pages 111-133.
    2. Joseph E. Stiglitz, 2016. "The Theory of Credit and Macro-economic Stability," NBER Working Papers 22837, National Bureau of Economic Research, Inc.
    3. Edward Wolff & Maury Gittleman, 2014. "Inheritances and the distribution of wealth or whatever happened to the great inheritance boom?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(4), pages 439-468, December.
    4. Rishabh Kumar, 2015. "Wealth accumulation and aggregate demand stagnation in a two class economy with applications to the United States," Working Papers 1526, New School for Social Research, Department of Economics.
    5. Raphaele Chappe & Willi Semmler, 2019. "Financial Market as Driver for Disparity in Wealth Accumulation—A Receding Horizon Approach," Computational Economics, Springer;Society for Computational Economics, vol. 54(3), pages 1231-1261, October.
    6. Giacomo Gabbuti, 2018. "Labour Shares and Income Inequality: Insights from Italian Economic History, 1895-2015," HHB Working Papers Series 13, The Historical Household Budgets Project.
    7. Stiglitz, Joseph E., 2018. "Pareto efficient taxation and expenditures: Pre- and re-distribution," Journal of Public Economics, Elsevier, vol. 162(C), pages 101-119.
    8. Terranova, Roberta & Turco, Enrico M., 2022. "Concentration, stagnation and inequality: An agent-based approach," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 569-595.
    9. Piketty, Thomas & Zucman, Gabriel, 2014. "Wealth and Inheritance in the Long Run," CEPR Discussion Papers 10072, C.E.P.R. Discussion Papers.
    10. Facundo Alvaredo & Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2013. "The Top 1 Percent in International and Historical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 3-20, Summer.
    11. Coveri, Andrea & Pianta, Mario, 2022. "Drivers of inequality: wages vs. profits in European industries," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 230-242.
    12. Rishabh Kumar, 2015. "Savings from top incomes and accumulation in the United States context: Results from disaggregated national accounts," Working Papers 1524, New School for Social Research, Department of Economics.
    13. Soon Ryoo, 2016. "Inequality of Income and Wealth in the Long Run: A Kaldorian Perspective," Metroeconomica, Wiley Blackwell, vol. 67(2), pages 429-457, May.
    14. Soon Ryoo, 2018. "Top income shares and aggregate wealth-income ratio in a two-class corporate economy [Growth and distribution in heterodox models with managers and financiers]," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(3), pages 699-728.
    15. Palagi, Elisa & Napoletano, Mauro & Roventini, Andrea & Gaffard, Jean-Luc, 2023. "An agent-based model of trickle-up growth and income inequality," Economic Modelling, Elsevier, vol. 129(C).
    16. Kumar, Rishabh & Schoder, Christian & Radpour, Siavash, 2018. "Demand driven growth and capital distribution in a two class model with applications to the United States," Structural Change and Economic Dynamics, Elsevier, vol. 47(C), pages 1-8.
    17. Jess Benhabib & Alberto Bisin, 2018. "Skewed Wealth Distributions: Theory and Empirics," Journal of Economic Literature, American Economic Association, vol. 56(4), pages 1261-1291, December.
    18. Brunner Johann K., 2014. "Die Erbschaftsteuer – Bestandteil eines optimalen Steuersystems?," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 15(3), pages 199-218, October.
    19. Yashin, Pete, 2020. "Financialization increases inequality and leads economy to a dead end," MPRA Paper 101061, University Library of Munich, Germany.
    20. Mattauch, Linus & Klenert, David & Stiglitz, Joseph E. & Edenhofer, Ottmar, 2022. "Overcoming wealth inequality by capital taxes that finance public investment," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 383-395.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:21189. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.