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Understanding the trends in income, consumption and wealth inequality and how important are life-cycle effects?

  • Mathias Sommer

    ()

    (Munich Center for the Economics of Aging (MEA))

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    Rising inequality in income, wealth and consumption has received a good deal of public attention in the past years. At the same time, also macroeconomists are more and more interested in inequality as they have expanded their models to incorporate heterogeneity in the household sector. We supply these models with empirical benchmarks for their calibration and contribute to the understanding of the reasons underlying the trends in inequality. Specifically, we employ a variance decomposition and estimate life-cycle profiles of inequality in income, consumption and wealth based on two measures of inequality. We deepen the discussion on wealth inequality by evaluating the relative importance of savings, portfolio choice and inheritances for the accumulation of wealth. To do so, we project active and passive savings based on the observed saving and investment behavior of synthetic cohorts from the German Income and Expenditure Survey (EVS).

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    Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 08160.

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    Date of creation: 03 Sep 2008
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    Handle: RePEc:mea:meawpa:08160
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    1. Johannes Gernandt & Friedhelm Pfeiffer, 2007. "Rising Wage Inequality in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 227(4), pages 358-380, August.
    2. Christopher D. Carroll & Andrew A. Samwick, 1993. "How important is precautionary saving?," Working Paper Series / Economic Activity Section 145, Board of Governors of the Federal Reserve System (U.S.).
    3. Lutz Hendricks, 2006. "How Important Is Discount Rate Heterogeneity for Wealth Inequality?," 2006 Meeting Papers 124, Society for Economic Dynamics.
    4. Burkhauser, Richard V. & Smeeding, Timothy M. & Merz, Joachim, 1994. "Relative Inequality and Poverty in Germany and the United States Using Alternative Equivalence Scales," MPRA Paper 7229, University Library of Munich, Germany.
    5. Mark Huggett & Gustavo Ventura & Amir Yaron, 2011. "Sources of Lifetime Inequality," American Economic Review, American Economic Association, vol. 101(7), pages 2923-54, December.
    6. Mark Hugget & Gustavo Ventura & Amir Yaron, 2002. "Human Capital and Earnings Distribution Dynamics," NBER Working Papers 9366, National Bureau of Economic Research, Inc.
    7. Alexander Ludwig & Thomas Schelkle & Edgar Vogel, 2007. "Demographic Change, Human Capital and Endogenous Growth," MEA discussion paper series 07151, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    8. Bach, Stefan & Corneo, Giacomo & Steiner, Viktor, 2007. "From Bottom to Top: The Entire Distribution of Market Income in Germany, 1992-2001," CEPR Discussion Papers 6251, C.E.P.R. Discussion Papers.
    9. Axel Börsch-Supan & Anette Reil-Held & Daniel Schunk, 2006. "Das Sparverhalten deutscher Haushalte: Erste Erfahrungen mit der Riester-Rente," MEA discussion paper series 06114, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    10. Edward J. Bird & Johannes Schwarze & Gert Wagner, 1994. "Wage effects of the move toward free markets in East Germany," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(3), pages 390-400, April.
    11. Richard H. Steckel & Jayanthi Krishnan, 1992. "Wealth Mobility in America: A View from the National Longitudinal Survey," NBER Working Papers 4137, National Bureau of Economic Research, Inc.
    12. Weber, Andrea Maria & Ammermüller, Andreas, 2003. "Education and Wage Inequality in Germany: A Review of the Empirical Literature," ZEW Discussion Papers 03-29, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    13. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
    14. Michael P. Keane & Kenneth I. Wolpin, 1995. "The career decisions of young men," Working Papers 559, Federal Reserve Bank of Minneapolis.
    15. Lena Edlund & Wojciech Kopczuk, 2007. "Women, Wealth and Mobility," NBER Working Papers 13162, National Bureau of Economic Research, Inc.
    16. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-25, April.
    17. Biewen, Martin, 2000. "Income Inequality in Germany during the 1980s and 1990s," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 46(1), pages 1-19, March.
    18. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-20, July.
    19. Nancy A. Jianakoplos & Paul L. Menchik, 1997. "Wealth Mobility," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 18-31, February.
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