Wealth Inequality in the US: the Role of Heterogeneous Returns

27/05/2021

Inês Xavier, Universidade Pompeu Fabra

Wealth Inequality in the US: the Role of Heterogeneous Returns

Local: Plataforma Zoom

Horário: 11:30 hrs

ABSTRACT: Why is wealth so concentrated in the United States? In this paper, I investigate the role of return heterogeneity as a source of wealth inequality. Using household-level data from the Survey of Consumer Finances (1989-2019), I provide new empirical evidence on returns to wealth in the United States, and find that wealthier households earn, on average, higher returns: moving from the 20th to the 99th percentile of the wealth distribution raises the average yearly return from 3.6% to 8.3%. To understand how these return differences shape the distribution of wealth, I introduce realistic return heterogeneity in a partial equilibrium model of household saving behavior. This exercise suggests that considering both earnings and return heterogeneity can fully account for the top 10% wealth share observed in the data (76%), which cannot be explained by earnings differences alone.

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