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Testing Piketty’s Hypothesis on the Drivers of Income Inequality
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Testing Piketty’s Hypothesis on the Drivers of Income Inequality

Evidence from Panel VARs with Heterogeneous Dynamics

Carlos Góes
IMF, 2016
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Editorial Rating

7

Qualities

  • Innovative

Recommendation

Income inequality is a concern around the world. Experts and policy makers from both the right and the left vigorously debate what, if anything, to do about it. Economist Thomas Piketty offered a big-picture analysis of the issue in his best-selling Capital in the Twenty-First Century, in which he found that wealth begets greater wealth, worsening inequality. Economist Carlos Góes attempts to tease out the validity of Piketty’s thesis and arrives at a different conclusion. getAbstract recommends his innovative but esoteric effort to ground Piketty’s historical observations in contemporary data.

Take-Aways

  • In his book Capital in the Twenty-First Century, economist Thomas Piketty argues that inequality is increasing due to capital’s rising share of income in a society.
  • An analysis of a 1980–2012 data set covering 19 developed economies refutes some of Piketty’s findings.
  • Research shows that income inequality lessens in at least three-quarters of the nations studied when capital returns grow faster than economic output.

About the Author

Carlos Góes is a research analyst at the International Monetary Fund.

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