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The Great Leveler According to HANK

Author

Listed:
  • Ralph Luetticke
  • Timothy Meyer
  • Gernot Müller
  • Moritz Schularick

Abstract

Using historical income and wealth data, we show that war reduces inequality: the top-1% income share falls by 20% and the top-1% wealth share by 10%. We measure three key drivers of inequality - capital destruction, taxation, and inflation - in the data and quantify their role with a Heterogeneous Agent New Keynesian (HANK) model. Destruction depresses profits and thus top incomes. Taxation primarily influences wealth dynamics, while inflation has little effect on top shares, but reduces indebtedness among poorer households. We validate our findings using new data on inequality across German towns in World War 2 and cross-country data on profits.

Suggested Citation

  • Ralph Luetticke & Timothy Meyer & Gernot Müller & Moritz Schularick, 2025. "The Great Leveler According to HANK," CESifo Working Paper Series 12276, CESifo.
    • Handle: RePEc:ces:ceswps:_12276
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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