Technological change, rent and income inequalities: A Schumpeterian approach

The increasing levels of income inequality have recently called much attention. However, there is no clear consensus over the role played by technological change in influencing income inequality. This paper contributes to the debate by implementing the Schumpeterian hypothesis that the rate of technological change exerts a significant influence in reducing income distribution. Because of the powerful effects of the creative destruction the rate of technological change engenders the reduction of wealth and rent inequalities that are highly skewed and, consequently, limits income inequality. We test this hypothesis in an empirical exercise implementing quantile regressions on a large dataset of advanced and industrializing economies. The inequality diminishing effect of technological change holds along the entire income inequality distribution, but exhibit larger effects in countries where the concentration of wealth and, consequently, income asymmetries are stronger. These results have novel welfare implications and suggest some crucial insights for economic policy analysis.