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

• Published in: Socio-economic planning sciences Vol. 92; p. 101804
• Main Authors: Policardo, Laura, Sanchez Carrera, Edgar J.
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.04.2024
• Subjects: Economic growth; France; Luxury non-productive assets; United States; Wealth inequality; D31; O47; Economic growth; Luxury non-productive assets; United States; Wealth inequality; O51; France; O52
• ISSN: 0038-0121; 1873-6041
• DOI: 10.1016/j.seps.2024.101804

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. •This paper contributes to the analysis of economic growth and wealth inequality in France and the United States.•We propose a macroeconomic model that includes both productive and non-productive assets.•Economic growth slows as the aggregate stock of non-productive assets increases as wealth inequality increases.•Redistribution will enrich the poorest households and therefore decrease their propensity to own unproductive assets.•Wealth inequality and economic growth may have a non-linear relationship.