Timothée Demont : timothee.demont[at]univ-amu.fr
Roberta Ziparo : rziparo[at]gmail.com
Piketty suggests that the relationship r > g, often referred to as Piketty’s Third Law, is one of the most powerful models to analyze structural changes in wealth inequality and Piketty refers to r > g as ‘the central contradiction of capitalist economics’. This paper constructs annual data for Britain on asset returns over the period 1210-2013 and examines whether the dynamics in the wealth-income ratio, W-Y, as a proxy for inequality, is governed by (r–g). It is shown that Piketty’s Third Law needs to be extended to r+sW > g+X before the W-Y ratio starts increasing, where X is a positive constant and sW is the propensity to save out of wealth. Estimates give strong support for the extended model.