Economics of Inequality/Economie des inégalités

(Master APE, Paris School of Economics & EHESS)

Thomas Piketty - Academic year 2012-2013

Syllabus & Course Material

(January 22nd 2013) (check on line for updated versions)

Email :

Office hours: Tuesdays 9h-12h, Jourdan B101

Course web page :

Previous year syllabus :

The objective of this course is to present recent research in the area of income and wealth distribution. Issues will include the following. How did income and wealth distributions evolve since the 19th century, how can we account for these changes? What was the interaction with the growth and capital accumulation process? Do existing models of growth and distribution properly account for these facts? Did the recent rise of inequality contribute to the 2007-2010 financial crisis? What will be the impact of the crisis on the structure of income and wealth distributions?

This course will take for the most part a positive perspective on distributional issues. For references on normative models of optimal taxation and redistribution, see the syllabus of my Public Economics course (or other courses). See also previous years' syllabuses.

The course is organized in 8 lectures of 3 hours. To validate the course, students are required (1) to attend and actively participate to all lectures; (2) to take the exam.

Lecture 1: Tuesday November 27th 2012, 15h-18h, Grande salle Jourdan

Lecture 2: Tuesday December 4th 2012, 15h-18h, Grande salle Jourdan

Lecture 3: Tuesday December 11th 2012, 15h-18h, Grande salle Jourdan

Lecture 4: Tuesday December 18th 2012, 15h-18h, Grande salle Jourdan

Lecture 5: Tuesday January 8th 2013, 15h-18h, Grande salle Jourdan

Lecture 6: Tuesday January 15th 2013, 15h-18h, Grande salle Jourdan

Lecture 7: Tuesday January 22nd 2013, 15h-18h, Grande salle Jourdan

Lecture 8/Exam: Tuesday January 29th 2013, 15h-18h, Grande salle Jourdan


General textbooks and references

A. Atkinson, The economics of inequality, Clarendon Press, 1983

A. Atkinson, F. Bourguignon, Handbook of Income Distribution, North-Holland, 2000

A. Atkinson, T. Piketty, Top incomes over the twentieth century, volumes 1 & 2, Oxford University Press, 2007 & 2010

(see World Top Incomes Database (WTID):

G. Bertola, R. Foellmi, J. Zweimuller, Income distribution in macroeconomic models, Princeton University Press, 2006

D. G. Champernowne, F. Cowell, Economic Inequality and Income Distribution, Cambridge University Press 1998

T. Piketty, L’économie des inégalités, La Découverte, collection « Repères », 1997

T. Piketty, Les hauts revenus en France au 20ème siècle – Inégalités et redistributions, 1901-1998, Grasset, 2001

T. Piketty, « On the Long Run Evolution of Inheritance – France 1820-2050 », Working Paper PSE 2010  QJE 2011

T. Piketty, G. Zucman, "Capital is Back: Wealth-Income Ratios in Rich Countries 1870-2010", PSE 2012


Week 1. Capital vs Labor – Basic models and facts

Be careful with data sources

(a) National income and wealth accounts (Insee, Banque de France: macro data)

(b) Income and wealth surveys (Insee: Budget, Emploi, Logement, Patrimoine, etc.)

(c) Administrative income and wealth tax files (RF, IR, ISF, ISu, IS, etc.)


Income = Capital income + Labor income: Y = F(K,L) = YK+YL

Course Notes: Basic Models of Inequality - Capital vs Labor


Capital vs Labor: from Abstract Concepts to Measurement

See Distribution of Income & Wealth in France 2010

See Macro Accounting of Income & Wealth in France 2010 (excel format)

See Changing Nature of National Wealth in the UK, France and the US 1700-2010


Week 2. Factor Shares and Wealth-Income Ratios in the Long Run


Question 1: Are labor & capital shares (factor shares) stable in the long run, & why?

See Course Notes on Factor Shares and Production Functions

[Selected figures on factor shares and wealth-income ratios in France 1820-2008]

See Course Notes on the measurement of factor shares and wealth-income ratios


Question 2: Are wealth-income ratios stable in the long run, & why?

Is balanced growth possible?

See Course Notes on Models of Growth and Capital accumulation

See Piketty-Zucman "Capital is Back: Wealth-Income Ratios in Rich Countries 1870-1910" PSE 2012


Week 3. The Rise of Income Inequality & the Financial Crisis

Limitations of survey-based inequality data sets:

see A.Atkinson, L.Brandolini, "Promises and pitfalls of secondary data sets", JEL 2001

Historical evolution of top income shares:

World Top Incomes Database

A.Atkinson,T. Piketty & E. Saez, “Top Incomes in the Long Run of History”, JEL 2011

Sample of figures from WTID

Exemple of raw income tax data: France 1919

Pareto coefficients vs inverted Pareto coefficients: see Atkinson-Piketty-Saez 2011, pp.13-14 & 50-55

On Pareto interpolation techniques, see Atkinson, chapter 2, in Atkinson-Piketty OUP 2007

Top shares vs Gini coefficients:

See F. Alvareto, A note on the relationship between top income shares and Gini coefficients, Economics letters 2011

Did rising inequality contribute to financial fragility and macroeconomic unstability?

H.Kumhof, R.Rancière, “Inequality, Leverages, and Crises”, PSE and IMF, 2010

P.Aghion, A.Banerjee, T.Piketty, “Dualism and Macroeconomic Volatility”, QJE 1999

T. Piketty, E. Saez, "Top Incomes and the Great Recession", 2012


Week 4. Why Are the Working Rich so Rich?

Institutions (unions, social norms, taxes, education policy, governance, etc.) vs market forces (skill-biased technical change, global competition for skills, superstars, etc.): on-going debate

In the very long run: main determinant of inequality of labor income = race between education and technology

See e.g. C. Goldin, L. Katz, The Race Between Education and Technology, HUP 2008

But in order to explain rising top income shares, one needs other mechanisms:

T. Piketty, E. Saez & S. Stantcheva, “Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities”, WP 2011 Slides

R. Burckhauser, S. Feng, S. Jenkins, and J. Larrimore, “Recent Trends in Top Income Shares in the USA: Reconciling Estimates from March CPS and IRS Tax Return Data”, mimeo, 2009 [article in pdf format]

S. Kaplan and J. Rauh, “Wall Street and Main Street: What Contributes to the Rise of the Highest Incomes?”, Review of Financial Studies, 2009 [article in pdf format]

O. Godechot, "Finance and the rise of inequalities in France", WP PSE 2011

M. Bertrand and S. Mullainathan, “Do CEOs Set Their Own Pay ? The Ones Without Principals Do”, Quarterly Journal of Economics 116 (3) (August 2001), pp.901-932 [article in pdf format]

X. Gabaix and A. Landier, “Why Has CEO Pay Increased so Much?”, Quarterly Journal of Economics 2008 [article in pdf format]

C. Frydman and R. Molloy, “Does Tax Policy Affect Executive Compensation? Evidence from Postwar Tax Reforms”, mimeo, 2009  [article in pdf format]

J. Rotemberg, “Perceptions of Equity and the Distribution of Income”, Journal of Labor Economics 2002  [article in pdf format]

M. Tervio, “Superstars and Mediocrities: Market Failure in the Discovery of Talent”, RES 2009

E. Saez, J. Slemrod and S. Gierz, “The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review”, NBER Working Paper 15012 (2009) [article en format pdf]


Have the working rich really replaced old-style rentiers? Measurement issues (capital income under-estimated in tax data) vs timing issues (wealth accumulation takes time)

E. Wolff, A. Zacharias, “Household Wealth & the Measurement of Economic Well-Being in the United States”, Journal of Economic Inequality 2009

Weeks 5 & 6. Wealth Accumulation and Distribution – Models and facts

Historical series on wealth inequality:

Historical wealth shares series available for fewer countries than historical income shares series

Wealth is mosly observed at death via inheritance taxes

(not all countries have annual wealth taxes; wealth surveys not fully reliable)

Exemple of raw estate tax data: US 2000-2010

Same Pareto interpolation techniques as with income tax data

(+mortality multiplier techniques to go from the wealth of decedents to the wealth of the living)

Basic references on long run wealth inequality series:

Lampman 1962 (US) and Atkinson-Harrison 1978 (UK)

(equivalent of Kuznets 1953 on long run income inequality series)


France: a lot of historical micro data on wealth

T. Piketty, G. Postel-Vinay et J.L. Rosenthal, “Wealth Concentration in a Developping Economy: Paris and France, 1807-1994”, AER 2006

T. Piketty, G. Postel-Vinay and J.L. Rosenthal, "Inherited vs Self-Made Wealth - Theory and Evidence from a Rentier Society (Paris 1872-1937)", WP 2011

US: some difficulties in measuring today's wealth inequality and mobility

W. Kopczuk et E. Saez, « Top Wealth Shares in the United States, 1916-2000 – Evidence from Estate Tax Returns », National Tax Journal 2004

A. Kennickell, "Ponds and Streams. Income and Wealth in the US 1989-2007", 2009

A. Kennickell, "Getting to the Top: Reaching Wealthy Respondents with the SCF", 2009b

L. Edlund and W. Kopczuk, "Women, Wealth and Mobility", AER 2009

S. Kaplan, J. Rauh, "Family, Education and Source of Wealth Among the Richest Americans 1982-2012", WP 2012


J. Roine and D. Waldenstrom, “Wealth Concentration over the Path of Development: Sweden, 1873-2005”, Scandinavian Journal of Economics 2009

Three facts:

(1) Wealth distribution always much more unequal than income distribution

(2) Inequality peak involves steeply-rising age-wealth profiles (rentier society)

(3) Inequality decline initiated by WW1&2 shocks; why permanent?

Four potential explanations for permanent decline in wealth inequality:

(3a) Human K revolution: decline in α and r=α/β? or g effect? (inequality↑ as r-g↑)

(3b) Lifecycle revolution: class war replaced by war of ages? (→ β↑ and r↓?)

(3c) Progressive taxation (and/or inflation?)

(3d) Absolute income effect?

→ open issues: each channel probably played a role

Why is wealth distribution so much more unequal than income distribution?

See Course Notes on Models of Wealth Accumulation & Distribution

Kotlikoff, L and L. Summers, “The Role of Intergenerational Transfers in Aggregate Capital Accumulation”, JPE 1981 

F. Modigliani, “Life Cycle, Individual Thrift and the Wealth of Nations”, AER 1986

 T. Piketty "On the Long Run Evolution of Inheritance", WP 2010 and QJE 2011  (slides)

T. Piketty & E. Saez, "A Theory of Optimal Inheritance Taxation", WP 2012 (revised version)

Week 7: The World Distribution of Income and Wealth & Global Imbalances 

Global income accounts and distributions:

Bourguignon, François and Christian Morrison, “Inequality Among World Citizens: 1820-1992,"
American Economic Review 92(4), (2002), 727-744.

"The World Distribution of Income: Falling Poverty and… Convergence, Period", Quarterly Journal of Economics, Vol. 121, No. 2: 351-397, May 2006

Global wealth accounts and distributions:

J. Davies et al, “The Level and Distribution of Global Household Wealth”, NBER 2009 

J.Davies, A.Shorrocks, “Global Wealth Report”, Credit Suisse 2010   Databook

First basic principle for accumulation and distribution in the open economy:

Output convergence does not imply wealth convergence

I.e. one can have: β1=s1/g > β2=s2/g 

Divergence even more extreme with infinite-horizon preferences

Second basic principle: returns and capital gains matter

External wealth accounts: NFAt+1 = NFAt + Xt-Mt + rtNFAt 

P. Lane, G. Milesi-Ferreti, “The External Wealth of Nations, Mark II”, JIE 2007

G. Milesi-Ferretti, “Global Rebalancing”, IMF 2010 

P.O. Gourinchas, H. Rey, « International Financial Adjustment », JPE 2007 

P.O. Gourinchas, H.Rey, “Exorbitant Privilege & Exorbitant Duty”, 2010

P.O. Gourinchas, H. Rey, "The Geography of Wealth Transfers", 2012

Tax havens and missing wealth: 

G. Zucman, “The Missing Wealth of Nations”, PSE, 2012

G. Zucman, "The End of Bank Secrecy?", PSE, 2012

See also « Tax Havens and Development », Commission on Capital Flight 2009