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Asset Accumulation with Heterogeneous Households: The Rise of Wealth Disparity

In: Inequality and Finance in Macrodynamics

Author

Listed:
  • Willi Semmler

    (New School for Social Research
    University Bielefeld)

  • Damien Parker

    (New School for Social Research)

Abstract

We present a formal model with heterogeneous households examining the dynamics of wealth disparity. We concentrate on financial wealth and study asset accumulation in terms of net wealth. Households borrow to finance investment and consumption. If the asset value is larger then the liability, then new net wealth is accumulated. The question then becomes what variables drive differences in net asset accumulation among households. The returns on assets, saving rates and borrowing capacity are major driving forces behind the differences in asset accumulation among households. The empirical part utilizes US Survey of Consumer Finance (SCF) data and supports the theoretical model. Specifically, the paper finds substantial evidence suggesting that when income groups are subdivided into those that dominantly borrow for consumption and those that dominantly borrow for investment (functioning as consumption smoothers), the former group suffers losses in net wealth while the latter maintains a steady increase in net worth.

Suggested Citation

  • Willi Semmler & Damien Parker, 2017. "Asset Accumulation with Heterogeneous Households: The Rise of Wealth Disparity," Dynamic Modeling and Econometrics in Economics and Finance, in: Bettina Bökemeier & Alfred Greiner (ed.), Inequality and Finance in Macrodynamics, pages 243-270, Springer.
    • Handle: RePEc:spr:dymchp:978-3-319-54690-2_11
    DOI: 10.1007/978-3-319-54690-2_11
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    Cited by:

    1. Demetris Koursaros & Nektarios Michail & Niki Papadopoulou & Christos Savva, 2018. "To Create or to Redistribute? That is the Question," Working Papers 2018-5, Central Bank of Cyprus.

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