Thomas Piketty and the Rate of Time Preference

Summary, in English

Using a standard model where the individual consumption path is computed solving an optimal control problem, we investigate central claims of Piketty (2014) Rather than r>g (confirmed in the data) r-s>g - with s being the rate of time preference - matters. If this condition holds and the elasticity of substitution in the production function is larger than one, the capital share converges to one in the long run. Nevertheless, this does not have major impact on the distribution of wealth. The latter, however, converges to maximum inequality for heterogeneous time preferences or rates of interest (either persistent or stochastic).

• Author: Thomas Fischer
• Department/s: Department of Economics
• Publishing year: 2017-01-13
• Language: English
• Publication/Series: Working Papers
• Volume: 2017
• Issue: 1
• Links: http://swopec.hhs.se/lunewp/abs/lunewp2017_001.htm
• Document type: Working paper
• Publisher: Department of Economics, Lund University
• Topic: Economics
• Keywords: wealth inequality; optimal control path; dynamic efficiency; C63; D31; E21
• Status: Published