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The distribution of wealth and redistributive policies

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Author Info
Jess Benhabib
Alberto Bisin () (Department of Economics New York University)

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Abstract

In this paper we study theoretically the dynamics of the distribution of wealth in an Overlapping Generation economy with bequest and various forms of redistributive taxation. We characterize the transitional dynamics of the wealth distribution and as well as the stationary distribution. We show that, in our economy, the stationary wealth distribution is a power law, a Pareto distribution in particular. Wealth is less concentrated (the Gini coefficient is lower) for both higher capital income taxes and estate taxes, but the marginal effect of capital income taxes is much stronger than the effect of estate taxes. Finally, we characterize optimal redistributive taxes with respect to an utilitarian social welfare measure. Social welfare is maximized short of minimal wealth inequality and with zero estate taxes.

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 368.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:368

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Related research
Keywords: wealth distribution;

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Find related papers by JEL classification:
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming

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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. Chipman, John S., 1974. "The welfare ranking of Pareto distributions," Journal of Economic Theory, Elsevier, vol. 9(3), pages 275-282, November. [Downloadable!] (restricted)
  2. Francine D. Blau & Lawrence M. Kahn, 2005. "Do Cognitive Test Scores Explain Higher U.S. Wage Inequality?," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 184-193, December. [Downloadable!] (restricted)
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  3. Sheshinski, Eytan, 1972. "Relation between a social welfare function and the gini index of income inequality," Journal of Economic Theory, Elsevier, vol. 4(1), pages 98-100, February. [Downloadable!] (restricted)
  4. Marco Cagetti & Mariacristina deNardi, 2000. "Entrepreneurship, Bequests, and the Distribution of Wealth," Econometric Society World Congress 2000 Contributed Papers 1226, Econometric Society. [Downloadable!]
  5. Mariacristina deNardi, 2000. "Wealth Inequality and Intergenerational Links," Econometric Society World Congress 2000 Contributed Papers 0547, Econometric Society. [Downloadable!]
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  6. Javier Díaz-Giménez & Vincenzo Quadrini & José-Víctor Ríos-Rull, 1997. "Dimensions of inequality: facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-21. [Downloadable!]
  7. Ofer Malcai & Ofer Biham & Peter Richmond & Sorin Solomon, 2002. "Theoretical Analysis and Simulations of the Generalized Lotka-Volterra Model," Quantitative Finance Papers cond-mat/0208514, arXiv.org. [Downloadable!]
  8. James Heckman & Edward Vytlacil, 2001. "Identifying The Role Of Cognitive Ability In Explaining The Level Of And Change In The Return To Schooling," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 1-12, February. [Downloadable!] (restricted)
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  9. Angus Deaton & Pierre-Olivier Gourinchas & Christina Paxson, 2000. "Social Security and Inequality over the Life Cycle," NBER Working Papers 7570, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Levy, Moshe, 2003. "Are rich people smarter?," Journal of Economic Theory, Elsevier, vol. 110(1), pages 42-64, May. [Downloadable!] (restricted)
  11. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April. [Downloadable!] (restricted)
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  12. F. Clementi & M. Gallegati, 2004. "Power Law Tails in the Italian Personal Income Distribution," Quantitative Finance Papers cond-mat/0408067, arXiv.org. [Downloadable!]
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  13. Bjerke, Kjeld, 1970. "Income and Wage Distributions-Part I: A Survey of the Literature," Review of Income and Wealth, Blackwell Publishing, vol. 16(3), pages 235-52, September.
  14. Marco Cagetti & Mariacristina De Nardi, 2003. "Entrepreneurship, frictions, and wealth," Staff Report 322, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  15. Makoto Nirei & Wataru Souma, 2007. "A Two Factor Model Of Income Distribution Dynamics," Review of Income and Wealth, Blackwell Publishing, vol. 53(3), pages 440-459, 09. [Downloadable!] (restricted)
  16. Morrisson, Christian, 2000. "Historical perspectives on income distribution: The case of Europe," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 4, pages 217-260 Elsevier. [Downloadable!] (restricted)
  17. Newbery, David, 1970. "A theorem on the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 264-266, September. [Downloadable!] (restricted)
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Cited by:
(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. Graziella Bertocchi, 2007. "The Vanishing Bequest Tax: The Comparative Evolution of Bequest Taxation in Historical Perspective," IZA Discussion Papers 2578, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," NBER Working Papers 12365, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Jess Benhabib & Alberto Bisin, 2009. "The distribution of wealth and fiscal policy in economies with finitely lived agents," NBER Working Papers 14730, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Jess Benhabib & Shenghao Zhu, 2008. "Age, Luck, and Inheritance," NBER Working Papers 14128, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-10-30.

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