Simulation framework for testing Piketty’s predictions
| Authors | |
|---|---|
| Year of publication | 2016 |
| Type | Article in Proceedings |
| Conference | 34th International Conference Mathematical Methods in Economics MME 2016 Conference Proceedings |
| MU Faculty or unit | |
| Citation | |
| Field | Economy |
| Keywords | inequality; economic growth; capital accumulation; simulation |
| Attached files | |
| Description | It is well known that Piketty’s claim that inequality rises whenever interest rates are higher than economic growth does not hold true in general. However, two of his conjectures are worth of testing: 1) that inequality can grow by a simple capital accumulation, i.e. the rich can get even richer both in absolute and in relative terms just by saving a part of their interest incomes, and 2) that slow economic growth can raise inequality. This paper develops a general simulation framework for testing which assumptions are necessary to get these outcomes. It also tests the conjectures in a simulated heterogeneous Solow model. The simulation shows that inequality does not grow by capital accumulation when there is no economic growth in the model. |
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