Inequality and Relative Saving Rates at the Top

42 Pages Posted: 4 Dec 2018

See all articles by Philipp Lieberknecht

Philipp Lieberknecht

Deutsche Bundesbank; Goethe University Frankfurt; Goethe University Frankfurt - Institute for Monetary and Financial Stability (IMFS)

Philip Vermeulen

European Central Bank (ECB)

Date Written: November 21, 2018

Abstract

We estimate the long- and short-run relationship between top income and wealth shares for France and the US since 1913. We find strong evidence for a long-run cointegration relationship governed by relative saving rates at the top. For both countries, we estimate a decline in the relative saving rates at the top - after 1968 in France and 1983 in the US, equivalent to a reduction of the long-run gap between wealth and income inequality compared to the period before. In the short-run, income inequality drives wealth inequality, while the converse link is weaker and slower. Using counterfactual simulations, we find that the recent rise in wealth inequality in the US is largely attributable to the contemporary increase in income inequality. Modest income concentration dynamics and a stronger decline in relative saving rates at the top than in the US contributed to a more subdued rise in wealth inequality in France.

Keywords: income inequality, wealth inequality, VECM, cointegration, top shares

JEL Classification: D31, E21, E25, N32, N34

Suggested Citation

Lieberknecht, Philipp and Vermeulen, Philip, Inequality and Relative Saving Rates at the Top (November 21, 2018). ECB Working Paper No. 2204. Available at SSRN: https://ssrn.com/abstract=3289185

Philipp Lieberknecht

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Goethe University Frankfurt ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Institute for Monetary and Financial Stability (IMFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Philip Vermeulen (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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