This paper delves into the complex relationship between innovation and top wealth inequality by constructing a theoretical framework based on the Pareto distribution and employing empirical analysis through a two-way fixed effects model on data from 40 major economies.Theoretical models suggest that innovation can influence top wealth inequality through mechanisms such as changes in the return on capital and the likelihood of incumbent firms being disrupted.On one hand,innovation can exacerbate top wealth inequality by increasing the rate of return on capital.On the other hand,the disruptive impact of innovation can also challenge incumbent enterprises,thereby narrowing the wealth share at the top.Empirical findings from this study indicate a significant negative relationship between innovation and top wealth inequality,but the impact of innovation on the Gini coefficient of overall wealth and wealth-income ratio is not significant,highlighting the role of innovation in potentially reducing wealth concentration among the top tier.This relationship exhibits cross-country heterogeneity,that is,in developed countries,the role of innovation in hindering the accumulation of wealth to the top groups has weakened.Additionally,the paper explores the mechanisms through which innovation may influence top wealth share obtained from the theoretical model,providing insights into the complex interplay between economic growth,technological change,and societal wealth structures.Our conclusion points towards the disruptive effect of innovation as a dominant force in shaping wealth inequality.Contrary to concerns that innovation might exacerbate wealth disparities,the findings suggest that innovation can serve as an effective tool for mitigating wealth concentration at the top.This has significant implications for policymakers,indicating that except for the traditional tax instruments,fostering competitive markets and encouraging innovation also could be efficient strategies for addressing wealth inequality.To be more specific,the government should further improve anti-monopoly legislation to fight against market monopoly forces;promote the development of the financial credit market and strive to address the financing difficulties faced by start-up enterprises;and also increase spending on education to explore and cultivate more high-quality talents.Based on the existing work of our paper,future research can further explore the heterogeneity of the negative relationship between innovation and top wealth inequality,and focus on discussing the impact of innovation on the social groups with different wealth levels and their underlying mechanisms.
innovationtop wealth inequalitypareto distribution
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