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Title: Wealth Inequality, The Rate of Return on Property Ownership, and Pareto Coefficients

Citation Type: Miscellaneous

Publication Year: 2017

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Abstract: Current research on wealth inequality attributes the main reason for the long-run divergence in wealth inequality to the r − g gap, where r is the rate of return on capital and g is the economy’s growth rate. Nonetheless, speculations about capital and the rate of return on capital - it’s definition and measurement - have raised concerns about deriving the r − g gap. This paper addresses the concentration of wealth by investigating income from property ownership. Specifically, it focuses on 3 main issues: (i) I provide an alternative measure for the Piketty r − g gap, by deriving the rate of return on property ownership (rp), and show that the gap between the long-run rate of return on property ownership (¯rp) and the long-run growth in the economy (¯g) explains the fast rise in wealth inequality; (ii) I show that when traditional models that focus on production only are used to capture the natural behavior of wealth inequality, wealth inequality tends to be inconclusive or explosive over the long-run; and (iii) I implement the new measure of rp −g into a simple model of wealth accumulation, that takes into account both productive and non-productive capital in generating wealth. Using the United States as a study case, I find that wealth inequality is more concentrated than suggested in the literature.

Url: https://www.aeaweb.org/content/file?id=5854

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Authors: Nti-Addae, Akwasi

Publisher: Kansas Department of Commerce

Data Collections: IPUMS USA

Topics: Housing and Segregation, Poverty and Welfare

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