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On the Evolution of the US Consumer Wealth Distribution

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  • Thomas Hintermaier

    (Universitaet Bonn)

  • Winfried Koeniger

    (Queen Mary, University of London)

Abstract

We use all available waves of the Survey of Consumer Finances to document the evolution of the wealth distribution in the US since the 1980s. Relying on the shape of this distribution we then estimate a life-cycle incomplete markets model. We find that considering a wide range of net worth percentiles for prime-age consumers between ages 26 and 55 delivers very precise estimates of the structural parameters, impatience and risk aversion. The estimated model captures how average net worth increases with age while the dispersion of net worth falls with age. The model also predicts some of the evolution of the net worth distribution since the 1980s. Feeding the observed higher labor income risk into the model increases precautionary savings while the higher experience premium of labor earnings reduces wealth accumulation. Quantitatively, these two forces imply that the model reproduces the stable average net worth for young consumers since the 1980s and the increasing dispersion of net worth for all prime-age consumers, while the model does not predict the observed increase of average net worth for older consumers between ages 46 and 55. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2010.10.003
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 14 (2011)
Issue (Month): 2 (April)
Pages: 317-338

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Handle: RePEc:red:issued:08-75

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Related research

Keywords: Life cycle; Incomplete markets; Wealth distribution; Simulated method of moments;

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References

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Cited by:
  1. Hintermaier, Thomas & Koeniger, Winfried, 2011. "Debt Portfolios," IZA Discussion Papers 5653, Institute for the Study of Labor (IZA).
  2. Daniel Harenberg & Alexander Ludwig, 2014. "Social Security and the Interactions Between Aggregate and Idiosyncratic Risk," Working Paper Series in Economics 71, University of Cologne, Department of Economics.
  3. Winfried Koeniger & Thomas Hintermaier, 2009. "Bankruptcy and Debt Portfolios," 2009 Meeting Papers 348, Society for Economic Dynamics.

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