Recommended
More Related Content
Similar to Lee piketty-0520-snu
Similar to Lee piketty-0520-snu (20)
More from Kang-Kook Lee
More from Kang-Kook Lee (12)
Recently uploaded
Recently uploaded (20)
Lee piketty-0520-snu
- 1. Revisiting ‘Capital in the Twenty-First Century’ and Korea Special Lecture Department of Economics Seoul National University May 20, 2019 Kang-Kook Lee College of Economics Ritsumeikan University
- 2. Piketty’s ‘Capital in the Twenty-First Century’ • Collecting data of top income and wealth using income tax and estate tax for more than 200 years of developed countries-> World Inequality Database • Analysis: examining inequality in income and wealth, by calculating the capital/income ratio and understanding their changes in terms of internal dynamics of capital accumulation • Finding: inequality was high in the 19th century but fell down in the 20th century, and has been increasing after the 1980s • Prospects of the 21st century: with lower growth rate, capital/income and inequality are likely to rise up • Proposals: very high top income tax and global capital tax for democracy to regulate capitalism
- 3. Evolution of the Top Income Share
- 5. Theoretical Framework of Piketty • 1st Fundamental law: capital’s share α = r x β • 2nd Fundamental law: capital/income ratio β = W/Y = s/g, at steady state, from Harrod-Domar model • r > g inequality: historical finding, then wealth inequality tends to rise, from the inequality model with shocks • Movements of W/Y, r, and g will determine capital’s share, and evolution of wealth inequality • Mainly based on neoclassical production function and growth model with some extensions • Presenting rich historical data, however too simple theory without extensive analysis, which should be developed more
- 13. Measurement of Capital and Housing Issue • Piketty’s capital includes all forms of net wealth including real estate, and it may be useful to some extent • However, evaluation of real estate in market prices may not be proper: affected by the real estate market bubble (Bonnet et al. 2014), not related to internal dynamics of accumulation • The increase in the capital’s share together with the increase in W/Y could be associated with the real estate sector • If we exclude the real estate sector, Piketty’s argument in the recent period is wrong (Rognlie, 2014; 2015) • Large heterogeneity from decomposition of Piketty’s data, how to understand the price changes of the real estate sector?
- 15. 0 1 2 3 4 5 6 Decomposition of W/Y: USA W/Y H/Y K/Y
- 16. 0 0.05 0.1 0.15 0.2 0.25 0.3 Decomposition of Capital Income Share: USA Yw Yh Yk
- 18. 0 0.05 0.1 0.15 0.2 0.25 0.3 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Decomposition of Capital Income Share: France Yw Yh Yk
- 20. 0 0.05 0.1 0.15 0.2 0.25 0.3 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Decomposition of Capital Income Share: UK Yc Yh Ynh
- 22. 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Decomposition of Capital Income Share: Japan Yc Yh Ynh
- 23. Too High Elasticity of Substitution and r • Why the increase of W/Y and the capital’s share together (not significant fall or return)? Large elasticity of substitution! • Piketty’s data using net Y suggest a very high elasticity of substitution, unrealistic compared with others (Rognlie, 2014) • Piketty mentions technological change in the book, while he argues that multidimensional character of capital with changes in relative prices is more important in the recent paper and interview (Piketty and Zucman, 2013; Piketty, 2015) • Again, significantly due to the housing sector with high housing capital income related with high imputed rent • But still high elasticity even without housing and debate of empirical measurement of the elasticity is ongoing (Karabarbounis and Neiman, 2014)
- 24. Net Elasticity of Substitution in Piketty’s Model (Rognlie, 2014)
- 29. Debates on r > g • Emphasis of r > g inequality in internal dynamics may be too strong in the book without extensive discussion presented • Using wealth concentration model with the Pareto coefficient with random shocks but reality is more complex (Jones, 2015) • Many argue that r >> g is necessary, and politics and institutions are important (Mankiw, 2015; Acemoglu, 2015) • r > g is not relevant to rising labor income inequality, which is important for the US (Furman, 2014) • Prediction of higher inequality with lower g and rising r > g is inconsistent with neoclassical production function • Piketty himself toned down the role of r > g in the recent paper (Piketty, 2015), which has limitation in examining inequality in the 20th and 21st century
- 30. Regression of Wealth Inequality on r-g - Using 10-yr average data for 1871 to 2010, for 4 countries data available - Insignificant relationship, same results for panel fixed effects model _cons .3256029 .0550159 5.92 0.000 .2132455 .4379604 rg .9757194 1.203669 0.81 0.424 -1.4825 3.433939 w1 Coef. Std. Err. t P>|t| [95% Conf. Interval] Total .601296174 31 .019396651 Root MSE = .14005 Adj R-squared = -0.0112 Residual .588407949 30 .019613598 R-squared = 0.0214 Model .012888225 1 .012888225 Prob > F = 0.4240 F( 1, 30) = 0.66 Source SS df MS Number of obs = 32 . reg w1 rg -.2-.1 0 .1.2.3 e(w1|X) -.05 0 .05 e( rg | X ) coef = .97571938, se = 1.2036688, t = .81
- 32. Other Criticisms and Debates • The net saving rate is not constant but affected by g, then W/Y will not increase much (Krussell and Smith, 2014) • Piketty assumes r and s stable, and only g falls, but r, s, and g may be interrelated as shown by the simple regressions for the period after the WW II • No empirical evidence for r > g to raise wealth inequality • The huge breakdown of W/Y in the first world war is hard to understand, not examined fully in the book, and low W/Y in the 20th century may reflect high capital productivity (Dumenil and Levy, 2015) • The role of politics is important, such as labor unions for changes in inequality, recently endorsed by Piketty, so power relationship should be studied more extensively (Lee, 2016; Piketty, 2017)
- 33. Regression of s on g - Using 10-yr average data for 1871 to 2010, for 4 countries - Insignificant relationship for OLS and panel fixed effects model - Using 10-yr average data for 1951 to 2010, for 7 countries - Significant with the coefficient about 0.5 - Same results for OLS and panel fixed effects -.1 -.05 0 .05 .1 e(s|X) -.05 0 .05 e( g | X ) coef = -.03713273, se = .27189245, t = -.14 -.05 0 .05 .1 e(s|X) -.04 -.02 0 .02 .04 .06 e( g | X ) coef = .96086479, se = .28125694, t = 3.42
- 34. Regression of r on g - Using 10-yr average data for 1871 to 2010, for 4 countries - Significant with the coefficient is about 0.5, so if g decreases, r falls but r-g getting higher (meaning very big sigma at steady state with CES production function) - Using 10-yr average data for 1951 to 2010, for 7 countries - Significant with the coefficient is about 0.8, - so if g decreases, r falls but r-g getting higher (meaning very big sigma at steady state with CES production function) -.04-.02 0 .02.04.06 e(r|X) -.04 -.02 0 .02 .04 .06 e( g | X ) coef = .81073209, se = .14738993, t = 5.5 -.05 0 .05 .1 e(r|X) -.05 0 .05 e( g | X ) coef = .48873402, se = .16133461, t = 3.03
- 35. r > g and Wealth Inequality • The effect of r-g on top 1% wealth concentration, for the US, France and the UK, over the 1870s to 2000s • No significant relationship between two variables • Similar to Acemoglu and Robinson (2015) for income inequality
- 37. Future Prospects of Research • A great study to present historical data but limitation in terms of theory and model, so further research is called on • Development of study on wealth inequality and concentration in many countries, using several methods (Saez and Zucman, 2014 vs. Kopczuk) • Empirical debates on measurement of elasticity of substitution including net income going on (Ronglie, Lawrence etc.) • Modelling the economy into the productive and rent sector, showing the rent rising with more power of capital (Stiglitz, 2015; Naidu etc.) • Radical changes toward political economy approach, away from marginal productivity theory and production function approach? (Moseley, 2015)
- 38. Capital in Korea in the Twenty-First Century • An increase in the capital-income ratio (β) after 1980 and the capitals’ share (α) after 1997 (Lee and Yoon, 2017) • A very high capital-income ratio, and a higher ratio of government wealth in comparison with other developed countries • r>g also emerging after 1997, leading to higher wealth inequality • The capital income share rising after the 1997 financial crisis (dividing mixed income into the same capital/labor income ratio) together with rising income inequality in general • Meaning that productivity growth is higher than real wage growth • A vicious circle of rising inequality and stagnant economic growth, so a change was called on
- 43. A Recent Debate on Productivity-Pay Gap and the Wage Share in Korea • Recently, Park (2019) criticizes the rising productivity-pay gap and the decline of the wage share, using same price deflators • However, using CPI is better for real wage calculation because it is for standard of living of workers, a difference in the base year should be considered too • Terms-of-trade effect due to different deflators is the same in the US, and we should consider median wage considering rising wage inequality • The wage data don’t cover all workers, so looking at macroeconomic data, productivity-pay gap really existed, and the wage share fell after 1997
- 50. Implications for Korea • Causes of the rising capital income ratio in Korea • The elasticity of substitution, the nature of technological change, globalization, real estate factor, and power relationship • Effects of the falling wage share and rising inequality on economic growth in Korea • Stagnant economic growth due to falling aggregate demand, serious political conflicts, and lower human capital investment and innovation etc. • The need for income-led growth or inclusive growth in Korea, with more effective policy measures