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Editorial to the special forum

Making the euro area work: proposals for monetary and fiscal reform

Stefan Ederer and Torsten Niechoj

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Stefan Ederer and Miriam Rehm

If Piketty's main theoretical prediction (r > g leads to rising wealth inequality) is taken to its radical conclusion, then a small elite will own all wealth if capitalism is left to its own devices. We formulate and calibrate a Post-Keynesian model with an endogenous distribution of wealth between workers and capitalists which permits such a corner solution of all wealth held by capitalists. However, it also shows interior solutions with a stable, non-zero wealth share of workers, a stable wealth-to-income ratio, and a stable and positive gap between the profit and the growth rate determined by the Cambridge equation. More importantly, simulations show that the model conforms to Piketty's empirical findings during a transitional phase of increasing wealth inequality, which characterizes the current state of high-income countries: the wealth share of capitalists rises to over 60 per cent, the wealth-to-income ratio increases, and income inequality rises. Finally, we show that the introduction of a wealth tax as suggested by Piketty could neutralize this rise in wealth concentration predicted by our model.

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Stefan Ederer, Eckhard Hein and Torsten Niechoj

First paragraph

The financial and economic crises which started in 2007 have triggered and motivated increasing research on finance and the instability of the financial system but also on the relationship between finance, distribution and growth. This special issue discusses various, but related theoretical and empirical aspects of finance, instability, distribution and investment.