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How Important Is Discount Rate Heterogeneity for Wealth Inequality?

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Author Info
Lutz Hendricks () (Iowa State University)

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Abstract

This paper investigates the role of discount rate heterogeneity for wealth inequality. The key idea is to infer the distribution of preference parameters from the observed age profile of wealth inequality. The contribution of preference heterogeneity to wealth inequality can then be measured using a quantitative life-cycle model. I find that discount rate heterogeneity increases the Gini coefficient of wealth by 0.06 to 0.11. The share of wealth held by the richest 1% of households rises by 0.03 to 0.13. The larger changes occur when altruistic bequests are large and when preferences are strongly persistent across generations. Discount rate heterogeneity also helps account for the large wealth inequality observed among households with similar lifetime earnings

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 124.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:124

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Keywords: Wealth inequality preference heterogeneity

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Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment

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  16. Hendricks, Lutz A., 2006. "The Intergenerational Persistence of Lifetime Earnings," Staff General Research Papers 12669, Iowa State University, Department of Economics.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kazuo Mino & Yasuhiro Nakamoto, 2008. "Progressive Taxation, Wealth Distribution, and Macroeconomic Stability," Discussion Papers in Economics and Business 08-22, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP). [Downloadable!]
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