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Factor Income Distribution and Endogenous Economic Growth - When Piketty meets Romer -

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  • Irmen, Andreas
  • Tabakovic, Amer
Abstract
We scrutinize Thomas Piketty's (2014) theory concerning the relationship between an economy's long-run growth rate, its capital-income ratio, and its factor income distribution put forth in his recent book Capital in the Twenty-First Century. We find that a smaller long-run growth rate may be associated with a smaller capital-income ratio. Hence, Piketty's Second Fundamental Law of Capitalism does not hold. However, in line with Piketty's theory a smaller long-run growth rate goes together with a greater capital share. These findings obtain in variants of Romer's (1990) seminal model of endogenous technological change. Here, both the economy's savings rate and its growth rate are endogenous variables whereas in Piketty's theory they are both exogenous parameters.

Suggested Citation

  • Irmen, Andreas & Tabakovic, Amer, 2016. "Factor Income Distribution and Endogenous Economic Growth - When Piketty meets Romer -," VfS Annual Conference 2016 (Augsburg): Demographic Change 145700, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc16:145700
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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