Wealth inequality and economic growth: Evidence from the US and France

Abstract

Economic inequality, in terms of income or wealth, is one of the most complex and perplexing challenges of our current capitalist economic system. While the dynamic relationship between income inequality and economic growth has been extensively investigated (since the beginning of the last century), the dynamic link between wealth inequality (or wealth concentration) and economic growth has been largely ignored in the literature, taking more attention in recent years. This paper asserts that the accumulation of non-productive assets/luxury goods is an important determinant of wealth inequality, as well as a determinant of the relationship between wealth inequality and economic growth. In this paper our aim is to show that an increase in wealth inequality is associated with a slowdown in economic growth. In particular, the paper shows that there is a negative relationship between wealth inequality and economic growth in France because poor households own a relatively large fraction of non-productive luxury goods. Nevertheless, this is not the case in the US, which is what explains that such negative relationship is not observed there. We conclude that a redistribution of wealth (from the rich to the poor) is important for attaining a sustained economic growth performance.