Political Economy of Wealth Inequality and Property Ownership

Abstract

After the World War era, there has been a gradual rise in wealth Inequality in industrialized economies, with wealth in the United States becoming more concentrated than wealth in most European economies.[1] Current research on wealth inequality attributes the main reason for the long-run divergence in wealth inequality to the r −g gap, where r is the rate of return on capital and g is the economy’s growth rate. Nonetheless, speculations about capital and the rate of return on capital, it’s definition and measurement, have raised concerns about deriving the r−g gap. Using the United States, post World Wars, as a study case, my dissertation addresses the concentration of wealth by investigating income from property ownership. Specifically it focusses on 3 main issues: (i) I provide an alternative measure for the Piketty r − g gap by deriving the rate of reutrn on property ownership (rp), and show that the gap between the long-run rate of return on property ownership (rp) and the long-run growth in the economy (g) explains the fast rise in wealth inequality captured in the U.S. economy. (ii) I show that when traditional models, that focus on production only, are used to capture the natural behavior of wealth inequality, wealth inequality tends to be explosive over the long-run. (iii) Since property ownership is not confined to production alone, I implement the new measure of rp − g into a simple model of wealth accumulation, that takes into account both productive and non-productive property in generating wealth. I find that wealth inequality in the U.S. economy is more concentrated than suggested by Thomas Piketty.