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\begin{document}
\title{The Piketty Effect: Income Distribution, Discontinuities and Economic Growth}
\author{Edward Song}
\thanks{I thank Matt Mickle for helping me with the Visual Basic mathematical modeling programming.
}
\date{June 30, 2015}
\maketitle
\begin{abstract}
Income distribution between the rich and poor have widened since 1981. During this same period, economic growth has slowed down. Using income and wealth inequality data from the Congressional Budget Office (CBO) and Thomas Piketty, I also explore redistributive effects of income when biological restrictions lead to minimum expenditure requirements and satiation conditions. That is, as income grows from being poor to rich, a person undergoes phase transitions in consumer behavior. In each different phase, the structure of the economic model describing consumer behavior changes. In this paper, I run simulations using a Solow type economic growth model to demonstrate the effects of these discontinuities. Because of these multi-phases, I conclude that a wealth tax leads to higher long run output than income taxes; a modest redistribution of resources from the wealthy to the poor can increase economic growth and have counter-cyclical effects in recessions, if the redistribution is in the form of human capital. This result could explain why the economy performs better when the president of the United States is a Democrat rather than a Republican. Finally, in the long run, redistribution of wealth in the form of human capital results in greater income equality than redistribution in the form of income.
\end{abstract}
\vspace{10 mm}
\noindent \emph{Keywords: Macroeconomics, Income Distribution, Economic Growth.}
\noindent \emph{Journal of Economic Literature Classification: }\emph{E21}, \emph{E22}, \emph{E25} \emph{E32.}
\noindent \newpage
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