Determinants of Wealth Inequality and Mobility in General Equilibrium

59 Pages Posted: 4 Mar 2019 Last revised: 6 Sep 2019

See all articles by Thomas Fischer

Thomas Fischer

Lund University - School of Economics and Management; Darmstadt University of Technology

Date Written: February 13, 2019

Abstract

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

Suggested Citation

Fischer, Thomas, Determinants of Wealth Inequality and Mobility in General Equilibrium (February 13, 2019). Available at SSRN: https://ssrn.com/abstract=3333692 or http://dx.doi.org/10.2139/ssrn.3333692

Thomas Fischer (Contact Author)

Lund University - School of Economics and Management ( email )

Tycho Brahes väg 1,
S-220 07 Lund, 223 63
Sweden

Darmstadt University of Technology ( email )

Darmstadt, Hesse D-64289
Germany

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