🤖 AI Summary
This study empirically tests Piketty’s central hypothesis that the “r−g gap”—the difference between the rate of return on capital (r) and the economic growth rate (g)—drives rising income inequality and capital’s share of national income. Using panel data from 19 advanced economies over 1980–2015, we estimate a heterogeneous dynamic panel structural vector autoregression (Panel SVAR) model—the first systematic causal identification of r−g’s effects on inequality and capital share. We conduct robustness checks across multiple operationalizations of r−g. Contrary to Piketty’s prediction, we find no statistically significant evidence that an expanding r−g gap increases either top income inequality or capital’s share of national income; results hold across all specifications. By providing the first formal econometric validation—rather than mere descriptive correlation—this work overcomes a longstanding methodological gap in the literature and establishes a new empirical benchmark for analyzing the drivers of inequality dynamics.
📝 Abstract
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.