Conclusion
In this article, we have investigated the situations under which unbounded wealth concentration is possible. We have done so by building and simulating a simple general equilibrium model of long-run wealth accumulation through intergenerational bequests.
We find that two necessary conditions must be met for unbounded wealth concentration. First, capital and labor must be substitutes in production, and technical progress must not be labor augmenting. In this case, the importance of capital income rises over time and labor income becomes irrelevant in the limit. Second, the rich must save more than the rest of society. In our simple model, unbounded concentration will not occur if either of these conditions is absent.
We also show that other intuitive channels for wealth concentration are not sufficient. For example, differing rates of return on capital investment are insufficient even when there is unbalanced growth in favor of capital. The same is true for differing earnings abilities. Finally, we show that while a flat wealth tax will not eliminate extreme wealth concentration, both a graduated wealth tax and a flat income tax will.
