CUSP Working Paper by Tim Jackson and Peter Victor
In a previous paper we developed a simple stock-flow consistent (SFC) model of Savings, Inequality and Growth in a Macroeconomic account (SIGMA) to test Piketty’s hypothesis that declining growth rates lead to rising inequality (Jackson and Victor 2016). In this paper, we extend that analysis to show that inequality in a ‘post-growth’ economy depends on three related structural features of the economy: the elasticity of substitution between labour and capital; the dynamics of the capital-to-output ratio, and the behaviour of the savings rate. We find that under certain conditions Piketty’s hypothesis is upheld. But we also identify conditions under which inequality is reduced significantly, even as the growth rate declines. We then test three different redistributive measures – a graduated income tax, a tax on capital and a universal basic income – in two distinct structural scenarios for an economy with a declining growth rate. We find that none of these measures is sufficient to reduce inequality when institutions aggressively favour capital over labour. Taken in combination, however, under conditions more favourable to wage labour, these same measures have the potential to eliminate inequality almost entirely, even as the growth rate declines. We discuss the implication of these findings for the ‘future of work’.