Determinants of Wealth Inequality and Mobility in General Equilibrium
59 Pages Posted: 4 Mar 2019 Last revised: 6 Sep 2019
Date Written: February 13, 2019
What determines inequality and mobility of wealth? This paper quantifies in closed form both the bottom and the top (Pareto) tail of the distribution for a rich continuous-time model. The distribution is especially shaped by bequest motives, demographics, and the asset portfolio composition under idiosyncratic wealth risk. Factors that increase inequality also reduce mobility. The model -- enriched by a realistic income process and non-trivial portfolio constraints -- is solved in general equilibrium and calibrated to match US evidence. A bequest tax is shown to reduce inequality and increase mobility. Several partial-equilibrium intuitions do not carry over into general equilibrium.
Keywords: wealth inequality, mobility of wealth, portfolio selection, fat tails, bequest tax
JEL Classification: D31, E21, H23, C68, G11
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