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The Pareto Distribution And Its Relationship To Piketty’S Third Fundamental Law Of Capitalism

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  • Jill Trinh

    (Business School, The University of Western Australia)

Abstract

This paper examines the relationship between the Pareto distribution and Piketty’s third fundamental law of capitalism. It has been widely known that top income and wealth takes the form of Pareto distribution, yet there is very limited literature investigating the role of Piketty’s third fundamental law of capitalism, in which r (the rate of return on capital) > g (the growth rate of national income), in determining the shape parameter α of the Pareto distribution. The central takeaway of this paper includes: (i) a critical assessment of Piketty’s criticism of Pareto’s work on distributional inequality, presented in Capital in the Twenty First century (2014) in which he indicated that Pareto had an illusion of “stable” inequality; and (ii) a simple agent model to formally demonstrate the relationship between Pareto’s alpha and Piketty’s third fundamental law of capitalism. The first one concerns intellectual history and the second one has contemporary relevance.

Suggested Citation

  • Jill Trinh, 2017. "The Pareto Distribution And Its Relationship To Piketty’S Third Fundamental Law Of Capitalism," Economics Discussion / Working Papers 17-11, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:17-11
    Note: MD5 = d730c7fb7e04446d3f96b2a8fc12b15d
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    File URL: https://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/2017/DP%2017.11_Trinh.pdf
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    References listed on IDEAS

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    1. 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.
    2. Joseph E. Stiglitz, 2015. "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part II: Equilibrium Wealth Distributions," NBER Working Papers 21190, National Bureau of Economic Research, Inc.
    3. Joseph E. Stiglitz, 2015. "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part IV: Land and Credit," NBER Working Papers 21192, National Bureau of Economic Research, Inc.
    4. Joseph E. Stiglitz, 2015. "New Theoretical Perspectives on the Distribution of Income and Wealth among Individuals: Part III: Life Cycle Savings vs. Inherited Savings," NBER Working Papers 21191, National Bureau of Economic Research, Inc.
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