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Where Does Wealth Come From?

Author

Listed:
  • Sandra E. Black
  • Paul J. Devereux
  • Fanny Landaud
  • Kjell G. Salvanes

Abstract

Much attention has been given to rising wealth inequality in recent decades. However, understanding inequality requires an understanding of how wealth relates to the potential wealth an individual could accumulate and where this wealth comes from. Using administrative data from Norway, we create measures of potential wealth that abstract from differential consumption and spending behavior. We then examine how these measures relate to observed net wealth of individuals at a point in time and the role played by different sources of wealth in the distribution of potential wealth. We find that net wealth is a reasonable proxy for potential wealth, particularly in the tails of the distribution. Importantly, people in different parts of the potential wealth (or actual net wealth) distribution get their wealth from very different sources. Labor income is the most important determinant of wealth, except among the top 1%, where capital income and capital gains on financial assets become important. Inheritances and gifts are not an important determinant of wealth, even at the top of the wealth distribution. Finally, although inheritances are not important, parental wealth does influence child’s wealth; children of wealthy parents accumulate wealth from very different sources than children of less wealthy parents.

Suggested Citation

  • Sandra E. Black & Paul J. Devereux & Fanny Landaud & Kjell G. Salvanes, 2020. "Where Does Wealth Come From?," NBER Working Papers 28239, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:28239
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    Cited by:

    1. Aliprantis, Dionissi & Carroll, Daniel R. & Young, Eric R., 2024. "What explains neighborhood sorting by income and race?," Journal of Urban Economics, Elsevier, vol. 141(C).

    More about this item

    JEL classification:

    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J1 - Labor and Demographic Economics - - Demographic Economics

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