Does r-g cause wealth inequality? The case of the United States


  • David Strauss Centro de Investigación y Docencia Económicas
  • Daniel Ventosa-Santaularia Centro de Investigación y Docencia Económicas



wealth inequality, r-g, Piketty, capital


Piketty claims that the gap between the return to capital and the growth rate (rg) governs the evolution of wealth inequality. This paper assesses its empirical validity using an IV approach and almost one century of US data. Our results are twofold: First, wealth shares are nonstationary, necessitating first differences to draw a valid inference from any econometric exercise. This is consistent with Piketty’s line of argumentation and casts doubt on studies on inequality that use inequality levels without showing the trending behavior of the data. Second, rg played a significant role in the evolution of wealth inequality over the last century, both statistically and economically. In particular, rg can explain over 50% of the increase in wealth inequality since the late 1970s.


Metrics Loading ...


Alvaredo, F., A.B. Atkinson, T. Piketty, and E. Saez. 2013. The top 1 percent in international and historical perspective, The Journal of Economic Perspectives, 27(3): 3-20.

Atkinson, A.B. 1983. Economics of Inequality, Oxford, Claredon Press.

Atkinson, A.B. 1987. On the measurement of poverty, Econometrica, 55(4): 749-764.

Atkinson, A.B. 2014. After Piketty?, The British Journal of Sociology, 65(4): 619-638.

Atkinson, A.B., T. Piketty, and E. Saez. 2011. Top incomes in the long run of history, Journal of Economic Literature, 49(1): 3-71.

Banerjee, A., J.J. Dolado, J.W. Galbraith, and D. Hendry. 1993. Co-Integration, Error Correction, and the Econometric Analysis of NonStationary Data, Oxford University Press.

Barkai, S. 2020. Declining labor and capital shares, The Journal of Finance, 75(5): 2421-2463.

Barro, R.J. 2000. Inequality and growth in a panel of countries, Journal of Economic Growth, 5(1): 5-32.

Barro, R.J. 2001. Inequality, growth, and investment, in K.A. Hassett and R.G. Hubbard (eds.), Inequality and Tax Policy, Washington D.C., American Enterprise Institute.

Bengtsson, E. and D. Waldenstrom. 2015. Capital shares and income inequality: Evidence from the long run, IZA Discussion Paper No. 9581.

Deininger, K. and L. Squire. 1998. New ways of looking at old issues: Inequality and growth, Journal of Development Economics, 57(2): 259-287.

Easterly, W. 2007. Inequality does cause underdevelopment: Insights from a new instrument, Journal of Development Economics, 84(2): 755-776.

Forbes, K.J. 2000. A reassessment of the relationship between inequality and growth, The American Economic Review, 90(4): 869-887.

Fuest, C., A. Peichl, and D. Waldenström. 2015. Piketty’s r-g model: Wealth inequality and tax policy, CESifo Forum, 16(1): 3-10.

Granger, C. 2012. Useful conclusions from surprising results, Journal of Econometrics, 169(2): 142-146.

Granger, C. and P. Newbold. 1974. Spurious regressions in econometrics, Journal of Econometrics, 2(2): 111-120.

Jones, C.I. 2015. Pareto and Piketty: The macroeconomics of top income and wealth inequality, The Journal of Economic Perspectives, 29(1): 29-46.

Kapetanios, G. 2005. Unit-root testing against the alternative hypothesis of up to m structural breaks, Journal of Time Series Analysis, 26(1): 123-133.

King, W.I. 1927. Wealth distribution in the continental United States at the close of 1921, Journal of the American Statistical Association, 22(158): 135-153.

Krugman, P. 2014, March 23. Wealth over work, The New York Times.

Krusell, P. and A.A. Smith Jr. 2015. Is Piketty’s “second law of capitalism” fundamental?, Journal of Political Economy, 123(4): 725-748.

Kuznets, S. 1955. Economic growth and income inequality, The American Economic Review, 45(1): 1-28.

Mankiw, N. 2015. Yes, r>g. So what?, The American Economic Review, 105(5): 43-47.

Milanovic, B. 2016. Increasing capital income share and its effect on personal income inequality, MPRA Paper No. 67661, University Library of Munich, Germany.

Perron, P. 1989. The great crash, the oil price shock, and the unit root hypothesis, Econometrica, 57(6): 1361-1401.

Persson, T. and G. Tabellini. 1994. Is inequality harmful for growth?, The American Economic Review, 84(3): 600-621.

Phillips, P.C.B. 1986. Understanding spurious regressions in econometrics, Journal of Econometrics, 33(3): 311-340.

Piketty, T. 2014. Capital in the Twenty-First Century, Massachusetts, Harvard University Press.

Piketty, T. 2015a. About Capital in the Twenty-First Century, The American Economic Review, 105(5): 48-53.

Piketty, T. 2015b. Putting distribution back at the center of economics: Reflections on “Capital in the Twenty-First Century”, The Journal of Economic Perspectives, 29(1): 67-88.

Piketty, T. and E. Saez. 2003. Income inequality in the United States, 1913-1998, The Quarterly Journal of Economics, 118(1): 1-39.

Piketty, T. and E. Saez. 2014. Inequality in the long run, Science, 344(6186): 838-843.

Piketty, T. and G. Zucman. 2014. Capital is back: Wealth-income ratios in rich countries, 1700–2010, The Quarterly Journal of Economics, 129(3): 1255-1310.

Piketty, T. and G. Zucman. 2015. Wealth and inheritance in the long run, in A.B. Atkinson and F. Bourguignon (eds.), Handbook of Income Distribution Vol. 2, 1303–1368, Elsevier.

Ramey, V. 2011. Identifying government spending shocks: It's all in the timing, The Quarterly Journal of Economics, 126(1): 1-50.

Ravn, M. and H. Uhlig. 2002. On adjusting the Hodrick-Prescott filter for the frequency of observations, The Review of Economics and Statistics, 84(2): 371-376.

Ray, D. 2015. Nit-Piketty: A comment on Thomas Piketty’s Capital in the Twenty First Century, CESifo Forum, 16(1): 19-25.

Rognlie, M. 2014. A note on Piketty and diminishing returns to capital, Unpublished Manuscript.

Roine, J. and D. Waldenström. 2015. Long run trends in the distribution of income and wealth, in A.B. Atkinson and F. Bourguignon (eds.), Handbook of Income Distribution, Vol. 2, 469-592, Elsevier.

Roine, J., J. Vlachos, and D. Waldenström. 2009. The long run determinants of inequality: What can we learn from top income data?, Journal of Public Economics, 93(7): 974-988.

Saez, E. and G. Zucman. 2016. Wealth inequality in the United States since 1913: Evidence from capitalized income tax data, The Quarterly Journal of Economics, 131(2): 519-578.

Sims, C.A., J.H. Stock, and M.W. Watson. 1990. Inference in linear time series models with some unit roots, Econometrica, 58(1): 113-144.

Solow, R. 2017. Thomas Piketty is right, in H. Boushey, J.B. DeLong, and M. Steinbaum (eds.), After Piketty: The Agenda for Economics and Inequality, Cambridge, Harvard University Press.

Stewart, C. 1939. Income capitalization as a method of estimating the distribution of wealth by size groups, in Conference on Research in National Income and Wealth (ed.), Studies in Income and Wealth, Volume 3, Cambridge, National Bureau of Economic Research.

Stewart, C. 2011. A note on spurious significance in regressions involving I (0) and I (1) variables, Empirical Economics, 41(3): 565-571.

Yule, G.U. 1926. Why do we sometimes get nonsense-correlations between time-series? A study in sampling and the nature of time-series, Journal of The Royal Statistical Society, 89(1): 1-63.




How to Cite

Strauss, D., & Ventosa-Santaularia, D. (2023). Does r-g cause wealth inequality? The case of the United States. Estudios Económicos De El Colegio De México, 38(2), 183–224.