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The Dynamics of the Racial Wealth Gap

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Abstract

We reconcile the large and persistent racial wealth gap with the smaller racial earnings gap, using a general equilibrium heterogeneous-agents model that matches racial differences in earnings, wealth, bequests, and returns to savings. Given initial racial wealth inequality in 1962, our model attributes the slow convergence of the racial wealth gap primarily to earnings, with much smaller roles for bequests or returns to savings. Cross-sectional regressions of wealth on earnings using simulated data produce the same racial gap documented in the literature. One-time wealth transfers have only transitory effects unless they address the racial earnings gap.

Suggested Citation

  • Dionissi Aliprantis & Daniel R. Carroll & Eric R. Young, 2019. "The Dynamics of the Racial Wealth Gap," Working Papers 201918, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwq:191800
    DOI: 10.26509/frbc-wp-201918
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    File URL: https://doi.org/10.26509/frbc-wp-201918
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    Cited by:

    1. Hero Ashman & Seth Neumuller, 2020. "Can Income Differences Explain the Racial Wealth Gap: A Quantitative Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 220-239, January.
    2. Peter Ganong & Damon Jones & Pascal J. Noel & Fiona E. Greig & Diana Farrell & Chris Wheat, 2020. "Wealth, Race, and Consumption Smoothing of Typical Income Shocks," NBER Working Papers 27552, National Bureau of Economic Research, Inc.
    3. Dionissi Aliprantis & Daniel R. Carroll, 2019. "What Is Behind the Persistence of the Racial Wealth Gap?," Economic Commentary, Federal Reserve Bank of Cleveland, issue February.

    More about this item

    Keywords

    Wealth Dynamics; Racial Inequality;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J7 - Labor and Demographic Economics - - Labor Discrimination

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