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Why Are the Wealthiest So Wealthy? A Longitudinal Empirical Investigation

Author

Listed:
  • Serdar Ozkan

  • Joachim Hubmer

  • Sergio Salgado

  • Elin Halvorsen

Abstract

We use Norwegian administrative panel data on wealth and income between 1993 and 2015 to study lifecycle wealth dynamics, focusing on the wealthiest households. On average, the wealthiest start their lives substantially richer than other households in the same cohort, own mostly private equity, earn higher returns, derive most of their income from dividends and capital gains, and save at higher rates. At age 50, the excess wealth of the top 0.1% group relative to mid-wealth households is accounted for in about equal terms by higher saving rates (34%), higher initial wealth (32%), and higher returns (27%), while higher labor income (5%) and inheritances (1%) account for the small residual. There is significant heterogeneity among the wealthiest: one-fourth of them which we dub the New Money start with negative wealth but experience rapid wealth growth early in life. Relative to the quartile of top owners that already started their life rich the Old Money the New Money are characterized by even higher saving rates and returns and also by higher labor income. Their excess wealth is mainly explained by higher saving rates (46%), higher returns (34%), and higher labor income (16%).

Suggested Citation

  • Serdar Ozkan & Joachim Hubmer & Sergio Salgado & Elin Halvorsen, 2023. "Why Are the Wealthiest So Wealthy? A Longitudinal Empirical Investigation," Working Papers 07/2023, Centre for Household Finance and Macroeconomic Research (HOFIMAR), BI Norwegian Business School.
    • Handle: RePEc:bbq:wpaper:0007
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    Cited by:

    1. Giuseppe Berlingieri & Maarten De Ridder & Danial Lashkari & Davide Rigo, 2025. "Creative destruction through innovation bursts," CEP Discussion Papers dp2095, Centre for Economic Performance, LSE.
    2. Helu Jiang & Yu Zheng & Lijun Zhu, 2024. "Entry Barriers And Growth: The Role Of Endogenous Market Structure," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(3), pages 1221-1248, August.
    3. Jean-Baptiste Michau & Yoshiyasu Ono & Matthias Schlegl, 2023. "The Preference for Wealth and Inequality: Towards a Piketty Theory of Wealth Inequality," Working Papers 2023-11, Center for Research in Economics and Statistics.
    4. Johannes König & Christian Schluter & Carsten Schröder, 2025. "Routes to the Top," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 71(2), May.
    5. Richard Audoly & Rory McGee & Sergio Ocampo & Gonzalo Paz-Pardo, 2024. "The life-cycle dynamics of wealth mobility," IFS Working Papers W24/12, Institute for Fiscal Studies.
    6. Matteo Dalle Luche & Demetrio Guzzardi & Elisa Palagi & Andrea Roventini & Alessandro Santoro, 2024. "Tackling the regressivity of the Italian tax system: An optimal taxation framework with heterogeneous returns to capital," World Inequality Lab Working Papers halshs-04753529, HAL.

    More about this item

    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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