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Understanding the U.S. distribution of wealth

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Author Info

  • Vincenzo Quadrini
  • José-Víctor Ríos-Rull

Abstract

This article describes the current state of economic theory intended to explain the unequal distribution of wealth among U.S. households. The models reviewed are heterogeneous agent versions of standard neoclassical growth models with uninsurable idiosyncratic shocks to earnings. The models endogenously generate differences in asset holdings as a result of the household's desire to smooth consumption while earnings fluctuate. Both of the dominant types of models--dynastic and life cycle models--reproduce the U.S. wealth distribution poorly. The article describes several features recently proposed as additions to the theory based on changes in earnings, including business ownership, higher rates of return on high asset levels, random capital gains, government programs to guarantee a minimum level of consumption, and changes in health and marital status. None of these features has been fully analyzed yet, but they all seem to have potential to move the models in the right direction.

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Bibliographic Info

Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (1997)
Issue (Month): Spr ()
Pages: 22-36

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Handle: RePEc:fip:fedmqr:y:1997:i:spr:p:22-36:n:v.21no.2

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Related research

Keywords: Wealth;

References

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  1. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  2. Sarte, Pierre-Daniel G., 1997. "Progressive taxation and income inequality in dynamic competitive equilibrium," Journal of Public Economics, Elsevier, vol. 66(1), pages 145-171, October.
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