Genetic Endowments, Income Dynamics, and Wealth Accumulation Over the Lifecycle

66 Pages Posted: 9 Aug 2022

See all articles by Daniel Barth

Daniel Barth

Board of Governors of the Federal Reserve System

Nicholas W. Papageorge

Johns Hopkins University Department of Economics

Kevin Thom

University of Wisconsin Milwaukee

Mateo Velasquez Giraldo

Johns Hopkins University, Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 3, 2022

Abstract

We develop and estimate a life-cycle consumption savings model in which observed genetic variation is allowed to affect wealth accumulation through several distinct channels. We focus on genetic markers that predict educational attainment, aggregated into a predictive index called a polygenic score. Based on substantial descriptive evidence, we allow variation in these endowments to affect earnings, the disutility of labor, stock market participation costs, and idiosyncratic rates of return on risky investments. The model also incorporates endogenous retirement and a realistic social security system. Parameter estimates suggest that, in addition to earnings, genetic differences are significantly associated with risky asset returns, both of which contribute to wealth inequality. Counterfactual policy exercises indicate that two ways to lower costs of an aging population (extending the age of retirement or cutting social security benefits) have similar magnitudes and distributions of welfare costs even though the latter policy appears to reduce wealth differences between agents with different genetic endowments. This illustrates the importance of welfare calculations when evaluating how genes interact with policy, which is possible to do if we incorporate genetic data into structural models.

Keywords: Wealth, Inequality, Genetic Endowments, Saving and Portfolio Choices, Retirement.

JEL Classification: D14, D15, D31, D63, G50, H31, H55, I38, J24, J26.

Suggested Citation

Barth, Daniel and Papageorge, Nicholas W. and Thom, Kevin and Velasquez Giraldo, Mateo, Genetic Endowments, Income Dynamics, and Wealth Accumulation Over the Lifecycle (August 3, 2022). Available at SSRN: https://ssrn.com/abstract=4182029 or http://dx.doi.org/10.2139/ssrn.4182029

Daniel Barth

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Nicholas W. Papageorge

Johns Hopkins University Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States

Kevin Thom

University of Wisconsin Milwaukee ( email )

2442 E. Kenwood Blvd.
Milwaukee, WI 53201-0729
United States

Mateo Velasquez Giraldo (Contact Author)

Johns Hopkins University, Department of Economics ( email )

Baltimore, MD 20036-1984
United States

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