| Popis: |
What is the relationship between the economy’s long-run growth rate, its capital-income ratio, and its factor income distribution? We argue that a satisfactory answer must be derived in an analytical framework that treats the growth and the savings rate as endogenous. From this perspective we scrutinize Piketty’s (2014) theory put forth in his book Capital in the Twenty-First Century in a richly parameterized variant of Romer’s (1990) seminal model with and without population growth. The economy’s growth and its savings rate are exogenous in Piketty’s theory and endogenous in Romer’s. 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. Moreover, in contrast to Piketty’s theory, a smaller long-run growth rate may go together with a greater or a smaller capital share. |
