Distribution of Wealth: Theoretical Microfoundations and Empirical Evidence
AbstractThis paper studies the dynamics of wealth distribution in an economy where dynasties with different wealth have constant marginal saving rates, firms’ productivities are subject to idiosyncratic shocks and factors’ returns are determined in competitive markets. Government imposes taxes on capital and labour incomes and redistributes the collected resources to individuals. The equilibrium distribution of wealth is explicitly calculated and it follows a Paretian law in the top tail. The Pareto exponent depends on the saving rate in a nonmonotonic fashion, on the net return on capital, on the growth rate of population and on the degree of portfolio diversification. On the contrary, the bottom tail of the wealth distribution mostly depends on the characteristics of the labour market. The resulting theoretical predictions find a corroboration in the empirical experiences of Italy and United States in the period 1987-2004.
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Bibliographic InfoPaper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 49.
Length: 49 pages
Date of creation: 2006
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-05 (All new papers)
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