The Life-Cycle Dynamics of Wealth Mobility

82 Pages Posted: 29 Aug 2024

See all articles by Richard Audoly

Richard Audoly

Federal Reserve Banks - Federal Reserve Bank of New York

Rory McGee

University of Western Ontario

Sergio Ocampo-Diaz

University of Western Ontario

Gonzalo Paz-Pardo

European Central Bank (ECB) - Directorate General Research

Multiple version iconThere are 2 versions of this paper

Date Written: August, 2024

Abstract

We use 25 years of tax records for the Norwegian population to study the mobility of wealth over people’s lifetimes. We find considerable wealth mobility over the life cycle. To understand the underlying mobility patterns, we group individuals with similar wealth rank histories using agglomerative hierarchical clustering, a tool from statistical learning. The mobility patterns we elicit provide evidence of segmented mobility. Over 60 percent of the population remains at the top or bottom of the wealth distribution throughout their lives. Mobility is driven by the remaining 40 percent, who move only within the middle of the distribution. Movements are tied to differential income trajectories and business activities across groups. We show parental wealth is the key predictor of who is persistently rich or poor, while human capital is the main predictor of those who rise and fall through the middle of the distribution.

Keywords: agglomerative hierarchical clustering, equality of opportunity, intergenerational links, life cycle, wealth dynamics

JEL Classification: D31, E21, C23, C38, C55

Suggested Citation

Audoly, Richard and McGee, Rory and Ocampo-Diaz, Sergio and Paz-Pardo, Gonzalo, The Life-Cycle Dynamics of Wealth Mobility (August, 2024). ECB Working Paper No. 2024/2976, Available at SSRN: https://ssrn.com/abstract=4940146 or http://dx.doi.org/10.2139/ssrn.4940146

Richard Audoly (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Rory McGee

University of Western Ontario ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

Sergio Ocampo-Diaz

University of Western Ontario ( email )

1151 Richmond Street
Suite 2
London, Ontario N6A 5B8
Canada

Gonzalo Paz-Pardo

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

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