Reference : Endogenous Factor Income Distribution: Piketty meets Romer
Scientific journals : Article
Business & economic sciences : Macroeconomics & monetary economics
Sustainable Development
http://hdl.handle.net/10993/42611
Endogenous Factor Income Distribution: Piketty meets Romer
English
Irmen, Andreas mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Tabakovic, Amer mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
2020
Economic Inquiry
Yes
International
[en] Endogenous Technological Change ; Capital Accumulation ; Aggregate Factor Income Distribution
[en] What is the relationship between the economy’s long-run growth rate, its
capital-income ratio, and its factor income distribution? We argue that a satisfactory
answer must be derived in an analytical framework that treats the growth and the savings
rate as endogenous. From this perspective we scrutinize Piketty’s (2014) theory put forth
in his book Capital in the Twenty-First Century in a richly parameterized variant of Romer’s
(1990) seminal model with and without population growth. The economy’s growth and
its savings rate are exogenous in Piketty’s theory and endogenous in Romer’s. We find
that a smaller long-run growth rate may be associated with a smaller capital-income ratio.
Hence, the key implication of Piketty’s Second Fundamental Law of Capitalism does not
hold. Moreover, in contrast to Piketty’s theory, a smaller long-run growth rate may go
together with a greater or a smaller capital share.
CREA
Researchers
http://hdl.handle.net/10993/42611

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