Where Does Wealth Come from?

72 Pages Posted: 21 Dec 2020 Last revised: 18 Nov 2021

See all articles by Sandra Black

Sandra Black

Columbia University

Paul J. Devereux

University College Dublin - Department of Economics; IZA Institute of Labor Economics

Fanny Landaud

Norwegian School of Economics (NHH) - Department of Economics

Kjell G. Salvanes

Norwegian School of Economics (NHH) - Department of Economics; IZA Institute of Labor Economics

Date Written: December 2020

Abstract

Much attention has been given to rising wealth inequality in recent decades. However, understanding inequality requires an understanding of how wealth relates to the potential wealth an individual could accumulate and where this wealth comes from. Using administrative data from Norway, we create measures of potential wealth that abstract from differential consumption and spending behavior. We then examine how these measures relate to observed net wealth of individuals at a point in time and the role played by different sources of wealth in the distribution of potential wealth. We find that net wealth is a reasonable proxy for potential wealth, particularly in the tails of the distribution. Importantly, people in different parts of the potential wealth (or actual net wealth) distribution get their wealth from very different sources. Labor income is the most important determinant of wealth, except among the top 1%, where capital income and capital gains on financial assets become important. Inheritances and gifts are not an important determinant of wealth, even at the top of the wealth distribution. Finally, although inheritances are not important, parental wealth does influence child’s wealth; children of wealthy parents accumulate wealth from very different sources than children of less wealthy parents.

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Suggested Citation

Black, Sandra and Devereux, Paul J. and Landaud, Fanny and Salvanes, Kjell G., Where Does Wealth Come from? (December 2020). NBER Working Paper No. w28239, Available at SSRN: https://ssrn.com/abstract=3753149 or http://dx.doi.org/10.2139/ssrn.3753149

Sandra Black (Contact Author)

Columbia University

Paul J. Devereux

University College Dublin - Department of Economics ( email )

Belfield
Dublin 4, 4
Ireland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Fanny Landaud

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

HOME PAGE: http://https://www.nhh.no/en/employees/faculty/fanny-landaud/

Kjell G. Salvanes

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway
+47 5 595 9315 (Phone)
+47 5 595 9543 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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