Secular Increase in Economic Inequality Accompanying a Constant Output/Capital Ratio

Harashima, Taiji (2023): Secular Increase in Economic Inequality Accompanying a Constant Output/Capital Ratio.

Abstract

Many empirical studies have concluded that the level of economic inequality has increased in many countries since the mid-twentieth century, but the output/capital ratio has barely changed during the same period. This secular increase in economic inequality indicates the existence of some essential heterogeneity among households. In this paper, I attempt to uncover this essential heterogeneity by focusing on rate of time preference (RTP) and persistent economic rents. I find that if heterogeneous RTP were the cause behind the observed secular increase in economic inequality, it could not coexist with a constant output/capital ratio. On the other hand, I find that heterogeneous persistent economic rent can coexist simultaneously with both phenomena and consider it the most likely the cause behind the increase in economic inequality accompanied by a constant output/capital ratio. I support this conclusion with both a theoretical analysis and numerical examinations.

• Item Type: MPRA Paper
• Language: English
• Keywords: Output/capital ratio, Heterogeneity, Inequality; Rents, Time preference
• Subjects: D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E23 - Production; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I31 - General Welfare, Well-Being

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