Will wealth become more concentrated in Europe? Evidence from a calibrated Post-Keynesian model

Ederer, Stefan; Rehm, Miriam

doi:10.1093/cje/bez014

Cited by 18 publications

(23 citation statements)

References 31 publications

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“…Based on the Cambridge equation (Pasinetti 1962), they point out that the wealth distribution in the long run can be stable, a statement that is clearly in contradiction to a reading of Piketty that takes his Neoclassical theory to its radical logical conclusions. Ederer and Rehm (2020) show that the empirical distribution of wealth is still less unequal than the one implied by a parameterized Post-Keynesian model. Both Piketty and Post-Keynesians, however, consider the transition phasethe world in which this and the next generation livesas the relevant reference point for economic analysis.…”

Section: Introductionmentioning

confidence: 77%

“…This paper extends the model of Ederer and Rehm (2020), which follows the Post-Keynesian tradition along the lines of Dutt (1990), Palley (2012;2017b) and Taylor et al (2015) with an endogenous wealth distribution in a two-class economy. The question we are asking is whether Piketty's empirical evidence regarding a rising wealth share for decades can be integrated into a Post-Keynesian model, which permits interior solutions for the wealth distribution.…”

Section: Piketty and The Post-keynesiansmentioning

confidence: 89%

“…In the vein of Palley (2017b), the model can thus be extended by blending not just workers', but also capitalists' income sources, that is, distributing wages between workers and capitalists. As Ederer and Rehm (2020) show, the personal income distribution is then more skewed towards capitalists than in the simple case since workers now receive less (wage) income.…”

Section: Model Extensionsmentioning

confidence: 96%

“…However, Piketty emphasizes that wages play an important (if diminishing) role even at the very top of the income distribution. Empirically, the share of wages received by capitalists lies between 5 and 10 per cent for the US and most EU countries (Taylor et al 2015;Ederer and Rehm 2020). In the vein of Palley (2017b), the model can thus be extended by blending not just workers', but also capitalists' income sources, that is, distributing wages between workers and capitalists.…”

Section: Model Extensionsmentioning

confidence: 99%

“…The reasons for differential returns across the wealth distribution might lie, among other reasons, in more professional wealth management at higher wealth levels, the ability to take higher risks, or a higher likelihood of insider knowledge. Empirical analysis (Ederer and Rehm 2020) finds that the composition of wealth varies between workers and capitalists in particular, with the former holding a larger share of their wealth in low-yield asset classes (in particular, bank deposits). The implication for the distribution of profits is that capitalists receive higher capital income and thus benefit more from the compound-interest effect.…”

Section: Model Extensionsmentioning

confidence: 99%

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Making sense of Piketty's ‘fundamental laws’ in a Post-Keynesian framework: the transitional dynamics of wealth inequality

Ederer

Rehm

2020

Review of Keynesian Economics

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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 per cent, 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.

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Section: Introductionmentioning

confidence: 77%