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Entrepreneurial Rates of Return and Wealth Inequality

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  • Bettina Bruggemann
  • Zachary L. Mahone

Abstract

We investigate rates of return to business wealth and total net worth along the wealth distribution in a quantitative model of occupational choice and housing. While it has long been established that these models are very successful at replicating wealth inequality, we show that they also produce endogenous rates of return to private equity and total net worth that share important properties with their empirical counterparts. Rates of return to entrepreneurial wealth are heterogeneous, persistent, negatively correlated with net worth, and very dependent on household type. Rates of return to total net worth exhibit similar scale dependence as the data but are positively correlated with net worth.

Suggested Citation

  • Bettina Bruggemann & Zachary L. Mahone, 2023. "Entrepreneurial Rates of Return and Wealth Inequality," Department of Economics Working Papers 2023-03, McMaster University.
    • Handle: RePEc:mcm:deptwp:2023-03
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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