The Historical Evolution of the Wealth Distribution: A Quantitative-Theoretic Investigation

38 Pages Posted: 9 Jan 2017

See all articles by Joachim Hubmer

Joachim Hubmer

Yale University

Per Krusell

Princeton University - Department of Economics; Stockholm University - Institute for International Economic Studies (IIES); Centre for Economic Policy Research (CEPR)

Anthony A. Smith

Yale University - Cowles Foundation

Multiple version iconThere are 2 versions of this paper

Date Written: January 2017

Abstract

This paper employs the benchmark heterogeneous-agent model used in macroeconomics to examine drivers of the rise in wealth inequality in the U.S. over the last thirty years. Several plausible candidates are formulated, calibrated to data, and examined through the lens of the model. There is one main finding: by far the most important driver is the significant drop in tax progressivity that started in the late 1970s, intensified during the Reagan years, and then subsequently flattened out, with only a minor bounce back. The sharp observed increases in earnings inequality, the falling labor share over the recent decades, and potential mechanisms underlying changes in the gap between the interest rate and the growth rate (Piketty's r - g story) all fall far short of accounting for the data.

Suggested Citation

Hubmer, Joachim and Krusell, Per L. and Smith, Anthony A., The Historical Evolution of the Wealth Distribution: A Quantitative-Theoretic Investigation (January 2017). CEPR Discussion Paper No. DP11743, Available at SSRN: https://ssrn.com/abstract=2896033

Per L. Krusell

Princeton University - Department of Economics ( email )

111 Fisher Hall
Princeton, NJ
United States
609-258-4003 (Phone)
609-258-6419 (Fax)

HOME PAGE: http://rincewind.iies.su.se/%7Ekrusell/

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden
+46 0 8 16 30 73 (Phone)
+46 0 8 16 41 77 (Fax)

HOME PAGE: http://rincewind.iies.su.se/%7Ekrusell/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Anthony A. Smith

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

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