Thomas Piketty’s seminal work “Capital in the 21st Century” empirically establishes a macroeconomic premise driving inequality: that the rate of return on capital (r) tends to be significantly higher than the rate of growth of income (g). When r>g, wealth accumulated in the past yields more income than that earned in the present, generating inequality. Redistributive fiscal policy corrects this by taxing the incomes and assets of those who earn incomes from r and providing subsidies and merit goods to those earning incomes from “g”.
This relationship holds when labour and capital resources are more or less fully employed (the “steady
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