Why Are the Wealthiest So Wealthy? A Longitudinal Empirical Investigation

111 Pages Posted: 23 Feb 2023 Last revised: 12 Apr 2023

See all articles by Serdar Ozkan

Serdar Ozkan

University of Toronto

Joachim Hubmer

University of Pennsylvania - Department of Economics

Sergio Salgado

The Wharton School, University of Pennsylvania

Elin Halvorsen

Statistics Norway - Research Department; University of Oslo - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 9, 2023

Abstract

We use Norwegian administrative panel data on wealth and income between 1993 and 2015 to study lifecycle wealth dynamics, focusing on the wealthiest households. On average, the wealthiest start their lives substantially richer than other households in the same cohort, own mostly private equity, earn higher returns, derive most of their income from dividends and capital gains, and save at higher rates. At age 50, the excess wealth of the top 0.1% group relative to mid-wealth households is accounted for in about equal terms by higher saving rates (34%), higher initial wealth (32%), and higher returns (27%), while higher labor income (5%) and inheritances (1%) account for the small residual. There is significant heterogeneity among the wealthiest: one-fourth of them—which we dub the “New Money”—start with negative wealth but experience rapid wealth growth early in life. Relative to the quartile of top owners that already started their life rich—the “Old Money”—the New Money are characterized by even higher saving rates and returns and also by higher labor income. Their excess wealth is mainly explained by higher saving rates (46%), higher returns (34%), and higher labor income (16%).

Keywords: Wealth inequality, life-cycle wealth dynamics, rate of return heterogeneity, bequests, saving rate heterogeneity

Suggested Citation

Ozkan, Serdar and Hubmer, Joachim and Salgado, Sergio and Halvorsen, Elin, Why Are the Wealthiest So Wealthy? A Longitudinal Empirical Investigation (March 9, 2023). Available at SSRN: https://ssrn.com/abstract=4362818 or http://dx.doi.org/10.2139/ssrn.4362818

Serdar Ozkan

University of Toronto ( email )

105 St George Street
Toronto, Ontario M5S 3G8
Canada

Joachim Hubmer

University of Pennsylvania - Department of Economics ( email )

HOME PAGE: http://sites.google.com/site/joachimhubmer

Sergio Salgado (Contact Author)

The Wharton School, University of Pennsylvania ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://https://sergiosalgadoi.wordpress.com/

Elin Halvorsen

Statistics Norway - Research Department ( email )

Akersveien 26
Postboks 2633 St. Hanshaugen
Oslo, Oslo 0131
Norway

University of Oslo - Department of Economics

Norway

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