Testing Piketty’s Hypothesis on the Drivers of Income Inequality: Evidence from Panel VARs with Heterogeneous Dynamics
IMF Working Papers, August 3, 2016
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- Testing Piketty’s Hypothesis on the Drivers of Income Inequality: Evidence from Panel VARs with Heterogeneous Dynamics
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Bibliographic details
- Authors: Carlos Góes
- Published: August 3, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475523249.001
Summary
- Author: Carlos Góes
- Date: August 3, 2016
- Core question: Do income inequality and the capital share in national income increase as the r-g gap grows, as hypothesized by Thomas Piketty?
- Approach: Build a set of Panel SVAR (Structural Vector Autoregression) models with heterogeneous dynamics to test Piketty’s theoretical causal chain.
- Sample: 19 advanced economies spanning over 30 years.
- Main headline finding: No empirical evidence that dynamics move in the way Piketty suggests.
- Robustness: Results are robust to several alternative estimates of r-g.
- Subjects/Keywords (as listed): Capital income, capital share, Factor Income Distribution, Global, Income distribution, Income Inequality, inequality pattern, narrative center, National income, Panel VAR, Personal income, share of capital, share response, share shock, WP
Methodology
- Model framework:
- Panel SVAR models constructed to capture heterogeneous dynamics across countries.
- Tests focus on impulse responses of inequality and capital share to changes in the r-g gap.
- Data scope and coverage:
- 19 advanced economies.
- Period covers over 30 years.
- Robustness checks:
- Alternative estimates of r-g used to verify stability of findings.
Key Findings
- Primary empirical result:
- No empirical evidence that inequality and capital share in national income increase as the r-g gap grows within the sample and models used.
- Robustness:
- The null result holds under several alternative estimates of r-g.
- Scope limitations:
- Analysis is based on the specified sample of 19 advanced economies and the constructed Panel SVARs over the stated multi-decade period.
Implications and Inferences
- For theory:
- The paper does not find empirical support, in this sample and with these methods, for Piketty’s proposed causal chain linking a widening r-g gap to rising income inequality and capital’s share of national income.
- For future research:
- Results suggest further empirical investigation is warranted using alternative models, broader samples, different time spans, or other identification strategies to evaluate Piketty’s hypothesis more fully.
- For policy:
- Given the lack of empirical support in this study, policymakers should consider multiple channels and empirical evidence before attributing observed changes in inequality to r-g dynamics alone.
Publication and Identification
- Pages: 27
- Volume: 2016
- Issue: 160
- Series: Working Paper No. 2016/160
- DOI: https://doi.org/10.5089/9781475523249.001
- Stock No: WPIEA2016160
- ISBN: 9781475523249
- ISSN: 1018-5941
Carlos Góes, "Testing Piketty’s Hypothesis on the Drivers of Income Inequality: Evidence from Panel VARs with Heterogeneous Dynamics", IMF Working Papers 2016, 160 (2016), August 3, 2016. DOI: https://doi.org/10.5089/9781475523249.001
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