Does Wealth Distribution and the Source of Wealth Matter for Economic Growth? Inherited v. Uninherited Billionaire Wealth and Billionaires’ Political Connections

Abstract

A key question in social sciences relates to the effect of wealth inequality on economic growth. Yet, in analyzing this issue, researchers have had to use income as a proxy for wealth. We derive a global measure of wealth inequality from Forbes magazine’s listing of billionaires and decompose it into three components: inequality resulting from entrepreneurs who used political connections in generating wealth, entrepreneurs who did not use such connections, and those who inherited wealth. We compare the effect of these three components of wealth inequality on growth to the effects of income inequality and poverty and find that the growth effects of self-made politically connected and inherited wealth inequality are negative, while self-made politically unconnected wealth inequality, income inequality, and initial poverty have no significant effect.

Keywords: Economic Growth; Wealth Inequality; Income Inequality, Billionaires, Entrepreneurship, Political Connections.

JEL Classification: D31, O40, O43