Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2017:1: Thomas Piketty and the Rate of Time Preference

Thomas Fischer ()
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Thomas Fischer: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: 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).

Keywords: wealth inequality; optimal control path; dynamic efficiency

JEL-codes: C63; D31; E21

34 pages, January 13, 2017

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