If Piketty's main theoretical prediction (r > g leads to rising wealth inequality) is taken to its radical conclusion, then
a small elite will own all wealth if capitalism is left to its own devices. We formulate and calibrate a Post-Keynesian model
with an endogenous distribution of wealth between workers and capitalists which permits such a corner solution of all wealth
held by capitalists. However, it also shows interior solutions with a stable, non-zero wealth share of workers, a stable wealth-to-income
ratio, and a stable and positive gap between the profit and the growth rate determined by the Cambridge equation. More importantly,
simulations show that the model conforms to Piketty's empirical findings during a transitional phase of increasing wealth
inequality, which characterizes the current state of high-income countries: the wealth share of capitalists rises to over
60 percent, the wealth-to-income ratio increases, and income inequality rises. Finally, we show that the introduction of a
wealth tax as suggested by Piketty could neutralize this rise in wealth concentration predicted by our model.
We develop and calibrate an analytical growth model in the Post-Keynesian tradition with an endogenous wealth distribution
and differential returns to wealth between workers and capitalists. We show that a long-run equilibrium allows for non-zero
wealth owned by workers, even as the model contains the "triumph of the rentier" predicted by Piketty as a special case. The
model's calibration to ten European countries shows that the distribution of wealth is likely to become more unequal in all
cases, barring political countermeasures.
Veranstalter: Europäische Kommission, GD Wirtschaft und Finanzen
Austrian Institute of Economic Research economist Margit Schratzenstaller's intervention focused on the bigger picture. "Future-proofing
fiscal policies is key to implementing current action plans to address increasing inequality, migration, and global warning",
she said. A reform of the rules is therefore imperative to close the 600 billion € investment gap that the EU currently faces.
A reformed EU budget should finance expenditure that yields more returns when engaged at the EU level, like R&D, and should
be financed with innovative taxes that cannot be properly implemented at national level, like a financial transaction tax
and an airline travel tax. Finally, "we desperately need a harmonisation of tax policy" she said, "to shift the burden away
from labour taxation towards profit taxation, through for instance a minimum corporate tax".