Question

Q1a) What are Piketty and Saez’ theories?

Q1b) What do they study and how does it relate to capital gains?

Q1c) How does it link to income inequality?

Please answer all questions in an easy to understand manner and provide links where possible.

Answer 1

• Piketty theory and capital: The economist Thomas Piketty has carried out an unique research on inequality, he has collected data on wealth of 20 countries covering a century after analyzing those data he made a formula , for which he is famous for which is r>g where r= return on capital and g = overall growth of the economy.. This means the growth in wealth in greater than growth in overall economy. Over time wealth will be accumulated in the hands of the richest few no matter how much work or how smartly work is done by others the greatest payoff will be in hand of them. Norway is the most equal country along with one the most productive countries in the world with consistency on the ranking of best places to live.But inequality increasing in Norway up 19% from 80s .To fight against inequality there should be active redistribution of wealth among the population along with access of education to all.

About inequality , Piketty says that Inequality is not an accident but a feature of capitalism. It can be fought through state intervention in economy. Unless capitalism is reformed inequality will increase over time. He argues that when rate of growth is low , then wealth can accumulate more quickly from r than labour , tends to accumulate top 10% to 1% thus inequality increases. According to Saez to fight with capitalism and reduce income inequality there is a huge role of technology and globalization , education government intervention and tax policy which can control the dominating capitalism