Public Finance Quarterly Archive Articles

Economic Growth and Changes in Capital and Labour Income in the USA (1988–2016)

10:18, március 11, 2018.

Additional Information to the Piketty Thesis

István Magas
Doctor of the Hungarian Academy of Sciences,
University Professor, Corvinus University of Budapest, Institute of World

Published in: Public Finance Quarterly 2018/1. (p. 7-23.)

Summary: The significant political changes which have occurred both in the USA and Europe over the past one and a half years as well as the stabilisation of processes in the world economy have raised the question again: How reliable is the Piketty thesis (r>g) regarding the forecast of income distribution processes by future growth and production factors? After the publication of his world famous book in English (Piketty, 2015), Piketty asked himself the aforementioned question again. He thought that his statement in his original thesis was shrouded in uncertainty. This study provides empirical data to the modified Piketty thesis. After an overview of the original theoretical starting points, the growth, productivity and factor income dynamics of the American private sector between 1988–2016 is analysed. The most important conclusion is that the variations of growth and return to capital differ, the (r–g) difference varies, and in the almost three decades in review considerable substitution effects can be identified between capital and labour in line with the CES type neoclassical production function. The persistently low interest rate environment is likely to increase non-financial investments, which may lay the foundations for a steadier long-term growth trend. In view of the above, mainstream criticism related to the Piketty thesis is often true.

Keywords: CES production function, elasticity of capital-labour substitution, factor income

JEL code: A10

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