Assessing Piketty’s second laws of capitalism

Pub. Date
06 June, 2017

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.