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  3. American Economic Review
  4. May 2017
  5. Earnings Inequality and Other Determinants of Wealth Inequality

Earnings Inequality and Other Determinants of Wealth Inequality

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Abstract

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.

Citation

Benhabib, Jess, Alberto Bisin, and Mi Luo. 2017. "Earnings Inequality and Other Determinants of Wealth Inequality." American Economic Review, 107 (5): 593-97. DOI: 10.1257/aer.p20171005

Additional Materials

JEL Classification

  • D31 Personal Income, Wealth, and Their Distributions
  • D33 Factor Income Distribution
  • E21 Macroeconomics: Consumption; Saving; Wealth
  • E25 Aggregate Factor Income Distribution
  • J31 Wage Level and Structure; Wage Differentials