The Distribution of Wealth and Real Growth in Italy: A Post-Keynesian Perspective

Abstract

This paper considers the problem of the determinants of income distribution in the light of the recent hypotheses advanced by Piketty on the evolution of the capitalistic system. It first reinterprets Piketty’s analysis in the context of a modified Cambridge model, where functional income distribution can adjust to ensure equality between a warranted rate and a natural rate of growth. The paper shows that this model yields some of the effects depicted by Piketty’s analysis through the rate of return to capital and the exogenous growth rate, if not only the functional, but also the personal distribution of income reacts to equilibrate the economy in response to divergent growth in the goods and labor markets. These results imply that the capital share of income and the share of the richer part of the population tend to move in the opposite direction in response to growth, so that, especially under declining growth, the fiscal treatment of capital and wealth should be different, with lower taxation for productive capital and increasing progressivity for income taxes. The main results of theoretical analysis are tested on data for the last 40 years of performance of the Italian economy, finding some significant consistency between the hypotheses formulated on the basis of the theoretical considerations above and the empirical evidence.