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Heterogeneity in Returns to Wealth and the Measurement of Wealth Inequality

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  • Andreas Fagereng
  • Luigi Guiso
  • Davide Malacrino
  • Luigi Pistaferri

Abstract

Lacking a long time series on the assets of the very wealthy, Saez and Zucman (2015) use US tax records to obtain estimates of wealth holdings by capitalizing asset income from tax returns. They document marked upward trends in wealth concentration. We use data on tax returns and actual wealth holdings from tax records for the whole Norwegian population to test the robustness of the methodology. We document that measures of wealth based on the capitalization approach can lead to misleading conclusions about the level and the dynamics of wealth inequality if returns are heterogeneous and even moderately correlated with wealth.

Suggested Citation

  • Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2016. "Heterogeneity in Returns to Wealth and the Measurement of Wealth Inequality," American Economic Review, American Economic Association, vol. 106(5), pages 651-655, May.
  • Handle: RePEc:aea:aecrev:v:106:y:2016:i:5:p:651-55
    Note: DOI: 10.1257/aer.p20161022
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    References listed on IDEAS

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    1. Jess Benhabib & Alberto Bisin & Shenghao Zhu, 2011. "The Distribution of Wealth and Fiscal Policy in Economies With Finitely Lived Agents," Econometrica, Econometric Society, vol. 79(1), pages 123-157, January.
    2. Saez, Emmanuel & Zucman, Gabriel, 2014. "Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data," CEPR Discussion Papers 10227, C.E.P.R. Discussion Papers.
    3. Bruce D. Meyer & Wallace K. C. Mok & James X. Sullivan, 2015. "Household Surveys in Crisis," Journal of Economic Perspectives, American Economic Association, vol. 29(4), pages 199-226, Fall.
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    Citations

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    Cited by:

    1. David Loschiavo, 2016. "Household debt and income inequality: evidence from Italian survey data," Temi di discussione (Economic working papers) 1095, Bank of Italy, Economic Research and International Relations Area.
    2. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2016. "Heterogeneity and Persistence in Returns to Wealth," EIEF Working Papers Series 1615, Einaudi Institute for Economics and Finance (EIEF), revised Nov 2016.
    3. Philippe De Donder & John E. Roemer, 2017. "The dynamics of capital accumulation in the US: simulations after piketty," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(2), pages 121-141, June.
    4. Lundberg, Jacob & Waldenström, Daniel, 2016. "Wealth Inequality in Sweden: What Can We Learn from Capitalized Income Tax Data?," Working Paper Series 1131, Research Institute of Industrial Economics.
    5. repec:eee:moneco:v:89:y:2017:i:c:p:25-44 is not listed on IDEAS
    6. Kasa, Kenneth & Lei, Xiaowen, 2018. "Risk, uncertainty, and the dynamics of inequality," Journal of Monetary Economics, Elsevier, vol. 94(C), pages 60-78.
    7. Jess Benhabib & Alberto Bisin, 2016. "Skewed Wealth Distributions: Theory and Empirics," NBER Working Papers 21924, National Bureau of Economic Research, Inc.
    8. Lundberg, Jacob & Waldenström, Daniel, 2016. "Wealth inequality in Sweden: What can we learn from capitalized income tax data?," CEPR Discussion Papers 11246, C.E.P.R. Discussion Papers.
    9. Lundberg, Jacob & Waldenström, Daniel, 2016. "Wealth Inequality in Sweden: What Can We Learn from Capitalized Income Tax Data?," IZA Discussion Papers 9902, Institute for the Study of Labor (IZA).
    10. Jesse Bricker & Alice Henriques & Jacob Krimmel & John Sabelhaus, 2016. "Measuring Income and Wealth at the Top Using Administrative and Survey Data," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(1 (Spring), pages 261-331.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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