Document Type

Unpublished Paper

Publication Date

Fall 2017


Wealth Distribution, Economic Growth, Paradox of Thrift


We present a structuralist growth and distribution model of capitalists and workers. Our model highlights the role of class-differentiated savings propensities as well as an independent accumulation function in determining the dynamics of wealth distribution in the long run. At the steady state, investment parameters do not influence the distribution of wealth but there exists a long run paradox of thrift effect, which distributes wealth to capital- ists whilst simultaneously exerting downward pressure on the long run state of aggregate demand. Applied to annual US data from 1950-2015 using the Metropolis-Hastings algorithm we find that the share of capitalist wealth will stabilize at approximately 68%, fairly close to the Kotlikoff-Summers dynas- tic capital range. We estimate the ratio of worker-capitalist saving propen- sities to be as low as 6%. Our paper has implications for the interaction between wealth inequality and long run economic stagnation in low-growth mature economies.