Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149304
Authors: 
Irmen, Andreas
Tabakovic, Amer
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 6217
Abstract: 
We scrutinize Thomas Piketty’s (2014) theory concerning the relationship between an economy’s long-run growth rate, its capital-income ratio, and its factor income distribution put forth in his recent book Capital in the Twenty-First Century. 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. In line with Piketty’s theory a smaller long-run growth rate may go together with a greater capital share. However, the mechanics behind this result are the opposite of what Piketty suggests. Our findings obtain in variants of Romer’s (1990) seminal model of endogenous technological change. Here, both the economy’s savings rate and its growth rate are endogenous variables whereas in Piketty’s theory they are both exogenous parameters. Including demographic growth in the spirit of Jones (1995) shows that a smaller growth rate of the economy may imply a lower capital share contradicting a central claim in Piketty’s book.
Subjects: 
endogenous technological change
capital accumulation
aggregate factor income distribution
JEL: 
E10
E21
E25
O33
O41
Document Type: 
Working Paper

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