[[{“value”:”Contra Piketty: We study the effect of interest rates on wealth inequality. While lower rates decrease the growth rate of rentiers, they also increase the growth rate of entrepreneurs by making it cheaper to raise capital. To understand which effect dominates, we derive a sufficient statistic for the effect of interest rates on the Pareto
The post Wealth Inequality in a Low Rate Environment appeared first on Marginal REVOLUTION.”}]]
Contra Piketty:
We study the effect of interest rates on wealth inequality. While lower rates decrease the growth rate of rentiers, they also increase the growth rate of entrepreneurs by making it cheaper to raise capital. To understand which effect dominates, we derive a sufficient statistic for the effect of interest rates on the Pareto exponent of the wealth distribution: it depends on the lifetime equity and debt issuance rate of individuals in the right tail of the wealth distribution. We estimate this sufficient statistic using new data on the trajectory of top fortunes in the U.S. Overall, we find that the secular decline in interest rates (or more generally of required rates of returns) can account for about 40% of the rise in Pareto inequality; that is, the degree to which the super rich pulled ahead relative to the rich.
That is from a recent piece by Matthieu Gomez and Émilien Gouin-Bonenfant in Econometrica. Here are less gated copies. Via M.
The post Wealth Inequality in a Low Rate Environment appeared first on Marginal REVOLUTION.
Economics, Uncategorized
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