The Role of Permanent Income and Demographics in Black/White Differences in Wealth
Harvard University - Department of Economics; University of Pennsylvania - Business & Public Policy Department
Joseph G. Altonji
Yale University - Economic Growth Center; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation
NBER Working Paper No. w8473
We explore the extent to which the huge race gap in wealth can be explained with properly constructed income and demographic variables. In some instances we explain the entire wealth gap with income and demographics provided that we estimate the wealth model on a sample of whites. However, we typically explain a much smaller fraction when we estimate the wealth model on a black sample. Using sibling comparisons to control for intergenerational transfers and the effects of adverse history, we find that differences in income and demographics are not likely to account for the lower explanatory power of the black wealth models. Our analysis of growth models of wealth suggests that differences in savings behavior and/or rates of return play an important role.
Number of Pages in PDF File: 62
Date posted: September 17, 2001