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On the Evolution of the US Consumer Wealth Distribution

Author

Listed:
  • Thomas Hintermaier

    (Universitaet Bonn)

  • Winfried Koeniger

    (Queen Mary, University of London)

Abstract

We use all available waves of the Survey of Consumer Finances to document the evolution of the wealth distribution in the US since the 1980s. Relying on the shape of this distribution we then estimate a life-cycle incomplete markets model. We find that considering a wide range of net worth percentiles for prime-age consumers between ages 26 and 55 delivers very precise estimates of the structural parameters, impatience and risk aversion. The estimated model captures how average net worth increases with age while the dispersion of net worth falls with age. The model also predicts some of the evolution of the net worth distribution since the 1980s. Feeding the observed higher labor income risk into the model increases precautionary savings while the higher experience premium of labor earnings reduces wealth accumulation. Quantitatively, these two forces imply that the model reproduces the stable average net worth for young consumers since the 1980s and the increasing dispersion of net worth for all prime-age consumers, while the model does not predict the observed increase of average net worth for older consumers between ages 46 and 55. (Copyright: Elsevier)

Suggested Citation

  • Thomas Hintermaier & Winfried Koeniger, 2011. "On the Evolution of the US Consumer Wealth Distribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 317-338, April.
  • Handle: RePEc:red:issued:08-75
    DOI: 10.1016/j.red.2010.10.003
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    References listed on IDEAS

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    Cited by:

    1. Daniel Harenberg & Alexander Ludwig, "undated". "Social Security and the Interactions Between Aggregate and Idiosyncratic Risk," Working Papers ETH-RC-14-002, ETH Zurich, Chair of Systems Design.
    2. Thomas Hintermaier & Winfried Koeniger, 2016. "Debt Portfolios and Homestead Exemptions," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(4), pages 103-141, October.
    3. Pham-Dao, Lien, 2016. "Public Insurance and Wealth Inequality - A Euro Area Analysis," Annual Conference 2016 (Augsburg): Demographic Change 145942, Verein für Socialpolitik / German Economic Association.
    4. Giulio Fella & Serafin Frache & Winfried Koeniger, 2016. "Buffer-Stock Saving and Households' Response to Income Shocks," CESifo Working Paper Series 6144, CESifo Group Munich.
    5. Nawid Siassi, 2014. "Inequality and the Marriage Gap," 2014 Meeting Papers 941, Society for Economic Dynamics.
    6. Giulio Fella & Serafin Frache & Winfried Koeniger, 2016. "Buffer-Stock Saving and Households' Response to Income Shocks," CESifo Working Paper Series 6144, CESifo Group Munich.
    7. Daniel Harenberg & Ludwig, Alexander, 2015. "Idiosyncratic Risk, Aggregate Risk, and the Welfare Effects of Social Security," MEA discussion paper series 201403, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    8. L. Arrondel & M. Roger & F. Savignac, 2014. "Wealth and Income in the Euro Area: Heterogeneity in Households’ Behaviours?," Working papers 497, Banque de France.
    9. Frederic L Pryor, 2015. "Recent Fracturing in the US Economy and Society," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 41(2), pages 230-250, March.
    10. Harenberg, Daniel & Ludwig, Alexander, 2018. "Idiosyncratic risk, aggregate risk, and the welfare effects of social security," ZEW Discussion Papers 18-016, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    11. repec:eee:dyncon:v:79:y:2017:i:c:p:126-153 is not listed on IDEAS
    12. Ferreira, Pedro Cavalcanti & Gomes, Diego B.P., 2017. "Health care reform or more affordable health care?," Journal of Economic Dynamics and Control, Elsevier, vol. 79(C), pages 126-153.

    More about this item

    Keywords

    Life cycle; Incomplete markets; Wealth distribution; Simulated method of moments;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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