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Understanding the trends in income, consumption and wealth inequality and how important are life-cycle effects?

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Author Info
Mathias Sommer () (Mannheim Research Institute for the Economics of Aging (MEA))
Abstract

Rising inequality in income, wealth and consumption has received a good deal of public attention in the past years. At the same time, also macroeconomists are more and more interested in inequality as they have expanded their models to incorporate heterogeneity in the household sector. We supply these models with empirical benchmarks for their calibration and contribute to the understanding of the reasons underlying the trends in inequality. Specifically, we employ a variance decomposition and estimate life-cycle profiles of inequality in income, consumption and wealth based on two measures of inequality. We deepen the discussion on wealth inequality by evaluating the relative importance of savings, portfolio choice and inheritances for the accumulation of wealth. To do so, we project active and passive savings based on the observed saving and investment behavior of synthetic cohorts from the German Income and Expenditure Survey (EVS).

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Paper provided by Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim in its series MEA discussion paper series with number 08160.

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Date of creation: 03 Sep 2008
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Handle: RePEc:mea:meawpa:08160

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Postal: MEA - Mannheimer Forschungsinstitut Ökonomie und Demographischer Wandel, L13, 17, University of Mannheim, 68131 Mannheim
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  7. Richard H. Steckel & Jayanthi Krishnan, 1992. "Wealth Mobility in America: A View from the National Longitudinal Survey," NBER Working Papers 4137, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-20, July. [Downloadable!] (restricted)
  11. Johannes Gernandt & Friedhelm Pfeiffer, 2006. "Rising Wage Inequality in Germany," Working Papers of the Research Group Heterogenous Labor 06-12, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim. [Downloadable!]
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  12. Huggett, Mark & Ventura, Gustavo & Yaron, Amir, 2006. "Human capital and earnings distribution dynamics," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 265-290, March. [Downloadable!] (restricted)
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  13. Alexander Ludwig & Thomas Schelkle & Edgar Vogel, 2007. "Demographic Change, Human Capital and Endogenous Growth," MEA discussion paper series 07151, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
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  16. Lena Edlund & Wojciech Kopczuk, 2007. "Women, Wealth and Mobility," NBER Working Papers 13162, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Hendricks, Lutz, 2007. "How important is discount rate heterogeneity for wealth inequality?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 3042-3068, September. [Downloadable!] (restricted)
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  18. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
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  19. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
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