Heterogeneity and Persistence in Returns to Wealth

100 Pages Posted: 9 Aug 2018

See all articles by Andreas Fagereng

Andreas Fagereng

Statistics Norway

Luigi Guiso

Einaudi Institute for Economics and Finance (EIEF)

Davide Malacrino

International Monetary Fund

Luigi Pistaferri

Stanford University; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 5 versions of this paper

Date Written: June 20, 2018

Abstract

We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, during our sample period individuals earn markedly different average returns on their financial assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution increases the return by 3 percentage points - and by 17 percentage points when the same exercise is performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time. We argue that while this persistence partly reflects stable differences in risk exposure and assets scale, it also reflects persistent heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.

Keywords: wealth inequality, returns to wealth, financial wealth, net worth, heterogeneity, intergenerational mobility

JEL Classification: D310, D910, E210, E240, G110

Suggested Citation

Fagereng, Andreas and Guiso, Luigi and Malacrino, Davide and Pistaferri, Luigi, Heterogeneity and Persistence in Returns to Wealth (June 20, 2018). CESifo Working Paper Series No. 7107. Available at SSRN: https://ssrn.com/abstract=3229061

Andreas Fagereng (Contact Author)

Statistics Norway ( email )

Postboks 8131 Dep, 0033 Oslo
Oslo, Oslo 0033
Norway
+47 2109 4700 (Phone)

HOME PAGE: http://sites.google.com/site/andreasfagereng/

Luigi Guiso

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Sallustiana 62
Rome, 00187
Italy
+39 06 4792 4858 (Phone)
+39 06 4792 4872 (Fax)

HOME PAGE: http://www.eief.it/faculty-visitors/faculty-a-z/luigi-guiso/

Davide Malacrino

International Monetary Fund ( email )

700 19th St NW
Washington, DC 20001
United States

Luigi Pistaferri

Stanford University ( email )

Stanford, CA 94305
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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