Testing Piketty’s Hypothesis on the Drivers of Income Inequality: Evidence from Panel VARs with Heterogeneous Dynamics

August 3, 2016

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Carlos Góes. Testing Piketty’s Hypothesis on the Drivers of Income Inequality: Evidence from Panel VARs with Heterogeneous Dynamics, (USA: International Monetary Fund, 2016) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Thomas Piketty's Capital in the Twenty-First Century puts forth a logically consistent explanation for changes in income and wealth inequality patterns. However, while rich in data, the book provides no formal empirical testing for its theoretical causal chain. In this paper, I build a set of Panel SVAR models to check if inequality and capital share in the national income move up as the r-g gap grows. Using a sample of 19 advanced economies spanning over 30 years, I find no empirical evidence that dynamics move in the way Piketty suggests. Results are robust to several alternative estimates of r-g.

Subject: Capital income, Income distribution, Income inequality, National accounts, National income, Personal income

Keywords: Capital income, Capital share, Factor Income Distribution, Global, Income distribution, Income Inequality, Inequality pattern, Narrative center, National income, Panel VAR, Personal income, Share of capital, Share response, Share shock, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/160
Stock No:

WPIEA2016160
ISBN:

9781475523249
ISSN:

1018-5941

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