Inheritance and inequality, and aggregate demand and policy issues
Abstract
Purpose
When the policy maker contemplates the current aggregate demand (AD), she/he does so given implicitly the current state of income inequality. And, policy goals should be set based on the distance between this demand and some “optimal” AD from the viewpoint of optimal income inequality. The purpose of this paper is to relate this policy concern to the sources of modern inequality.
Design/methodology/approach
To characterize optimality, recent research in inequality reveals that paternalistic inheritance is the decisive source of it. Inequality is the outcome of an intergenerational externality according to which the current entrepreneurs (physical-capital formation agents) bequeath to descendants who use the inheritance as rentiers rather than as entrepreneurs. Several policy measures have been proposed to correct for this externality. Yet, it is found that if the “dynastic” character of inequality is disregarded, the distance between actual and optimal AD will be ever increasing.
Findings
Policy should be addressing the motive of the descendants to act as rentiers, which is found to be easy to attain once the policy maker adopts a natural-resource view of sizeable inheritance and proceeds to reassign property rights over it across generations.
Originality/value
Optimality is identified with the Cantorian (total) ordering of the social economy, which is inhibited by the institution of dynastic property rights. One way to deal with this problem is to view inheritance as a depletable natural resource.
Keywords
Acknowledgements
This paper has benefited from anonymous reviewal.
Citation
Soldatos, G.T. (2017), "Inheritance and inequality, and aggregate demand and policy issues", International Journal of Social Economics, Vol. 44 No. 12, pp. 1833-1845. https://doi.org/10.1108/IJSE-01-2016-0021
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited