Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 9/2010: Older or Wealthier? The Impact of Age Adjustment on Cross-Sectional Inequality Measures.

Ingvild Almås () and Magne Mogstad ()
Additional contact information
Ingvild Almås: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Magne Mogstad: Statistics Norway

Abstract: Differences in individual wealth holdings are widely viewed as a driving force of economic inequality. However, as this finding relies on cross-section data, a concern is that one confuses older with wealthier. We propose a new method to adjust for age effects in cross-sections, which eliminates wealth inequality due to age, yet preserves inequality arising from other factors. Using a new cross-country comparable database, we examine the impact of age adjustments on wealth inequality across countries and over time. We find that the most widely used method yield a substantially different picture of age adjusted wealth inequality than our method.

Keywords: Wealth inequality; Life cycle; Age adjustments; Gini coefficient.

JEL-codes: D31; D63; D91; E21

55 pages, March 9, 2010

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