Top income shares and aggregate wealth-income ratio in a two-class corporate economy

Abstract

This paper examines some determinants of top income shares and the aggregate wealthincome ratio in the United States. The paper, first, points out the di culties in Piketty's neo-classical version of explanation of US income inequality, which stresses the e↵ect of the rising aggregate wealth-income ratio and high elasticity of factor substitution. Second, the analysis, based on a Cambridge two-class model along the lines of Kaldor (1955Kaldor ( /56, 1966 and Pasinetti (1962), highlights the role of financialization in increasing inequality. Third, the analysis suggests that the rise in the aggregate wealth-income ratio from 1980 to 2007 in the US is explained mostly by asset price inflation, not by technical relations. Finally, the analysis examines the e↵ects of the slowdown in capital accumulation on income distribution and wealth-income ratios, which are very di↵erent from those in Piketty's Capital in the twenty first century.keyword top income share, wealth-income ratio, financialization, top management pay, stock-flow consistency JEL classification E12, E21, E25, E44