Earnings Inequality and Other Determinants of Wealth Inequality

We study the relation between the distribution of labor earnings and the distribution of wealth. We show, theoretically as well as empirically, that while labor earnings and precautionary savings are important determinants of wealth inequality factors, they cannot by themselves account for the thick...

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Bibliographic Details
Published in:The American economic review 2017-05, Vol.107 (5), p.593-597
Main Authors: Benhabib, Jess, Bisin, Alberto, Luo, Mi
Format: Article
Language:English
Subjects:
Consumption function
Distribution of wealth
Earnings
Economic inequality
Economic models
Economic theory
HETEROGENEITY AND POWER LAWS IN MACROECONOMICS
Income distribution
Income inequality
Inequality
Precautionary savings
Rates of return
Savings
Statistical significance
Stochastic models
Wealth
Wealth distribution
Working papers
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Summary:We study the relation between the distribution of labor earnings and the distribution of wealth. We show, theoretically as well as empirically, that while labor earnings and precautionary savings are important determinants of wealth inequality factors, they cannot by themselves account for the thick tail of (the large top shares in) the observed distribution of wealth. Other determinants, like stochastic returns to wealth, as well as savings rates and rates of returns increasing in wealth, need to be accounted for.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.p20171005