Piketty’s r-g Model: Wealth Inequality and Tax Policy

The so-called 𝑟−𝑔 model of Piketty (2014), which relates the difference between the rate of return on capital, 𝑟, and the rate of income growth, 𝑔 to the level of economic inequality has received enormous attention in both academic and popular circles. In its simplest characteriza-tion, it says that when existing ("old") capital grows faster than new capital is created out of accumulated incomes, then already relatively rich capital owners will become even richer relative to the others not holding capital, and thus inequality will increase.