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Earnings Inequality and Other Determinants of Wealth Inequality

Jess Benhabib; Alberto Bisin; Mi Luo

New York University, 19 W 4th Street, New York, NY 10012 (e-mail: )

American Economic Review 2017

We study the relation between the distribution of labor earnings and the distribution of wealth. We show, theoretically as well as empirically, that while labor earnings and precautionary savings are important determinants of wealth inequality factors, they cannot by themselves account for the thick tail of (the large top shares in) the observed distribution of wealth. Other determinants, like stochastic returns to wealth, as well as savings rates and rates of returns increasing in wealth, need to be accounted for.

DOI
10.1257/aer.p20171005
Volume
107 (5)
Pages
593-597
Language
en
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