Determinants of Wealth Inequality and Mobility in General Equilibrium

66 Pages Posted: 4 Mar 2019 Last revised: 4 Dec 2020

See all articles by Thomas Fischer

Thomas Fischer

Lund University - School of Economics and Management

Date Written: February 13, 2019

Abstract

What determines wealth inequality and mobility and how can the policy maker influence it? This paper quantifies in closed form the bottom and the top (Pareto) tail of the distribution in a continuous-time heterogeneous agent model. Financial market imperfections play a key role, for which factors that increase inequality also reduce mobility. While a bequest tax reduces inequality, its effects are dampened in general equilibrium. We formally show that the welfare trade-off for bequest taxes depends crucially on the bequest elasticity. However, in the calibrated model, even suboptimal bequest taxes have little adverse welfare effects.

Keywords: wealth inequality, mobility of wealth, portfolio selection, fat tails, bequest tax

JEL Classification: D31, E21, H21, 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

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