Assessing Piketty's second laws of capitalism
This paper assesses Piketty's second fundamental law of capitalism to investigate patterns and determinants of wealth inequality over the last century and a half. We first discuss the foundations of this theory on the basis of the most popular growth models, and then perform a long-run regression analysis of wealth inequality using Piketty and Zucman's data and a new historical dataset for the OECD countries covering the period 1870-2010. We find that the wealth-to-income ratio, beta, is significantly related to the ratio between the saving rate, s, and the rate of income growth, g, between 1870 and 2010. The estimated coefficient for the s/g ratio ranges from 0.05 to 0.18, depending on the specification, while the theory predicts a unitary value. It is also shown that the wealth-to-income ratio responds to the variations in income growth much more than to variations in the saving rate.