Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2019:22: Determinants of Wealth Inequality and Mobility in General Equilibrium

Thomas Fischer ()
Additional contact information
Thomas Fischer: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: What determines inequality and mobility of wealth? This paper quantifies in closed form both the bottom and the top (Pareto) tail of the distribution for a rich continuous-time model. The distribution is especially shaped by bequest motives, demographics, and the asset portfolio composition under idiosyncratic wealth risk. Factors that increase inequality also reduce mobility. The model - enriched by a realistic income process and non-trivial portfolio constraints - is solved in general equilibrium and calibrated to match US evidence. A bequest tax is shown to reduce inequality and increase mobility. Several partial-equilibrium intuitions do not carry over into general equilibrium.

Keywords: wealth inequality; mobility of wealth; portfolio selection; fat tails; bequest tax

JEL-codes: C68; D31; E21; G11; H23

59 pages, December 19, 2019

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